FRENCH  PUBLIC  FINANCE 

In  the  Great  War  and  Today 
Bankers  Trust  Company  Publications 


Professor  R.   G.   Gettell 


in  2008  with  funding  from 
IVIicrosoft  Corooration 


^;h«ii<i  rifti 


1919191 


IVlfl 


French  Public  Finance 


French  Public  Finance 

In  the  Great  War  and  Today 


With  Chapters  on 
Banking  and  Currency 


By 

Harvey  E.  Fisk 


New  York — Paris 

Bankers  Trust   Company 

I  922 


^ 


Copyright  1922  by 

Bankers  Trust  Company 

New  York 

All  rights  reserved 


ttJ    /0<?/ 


Foreword 


WE  publish  this  book  knowing  that  every  effort  has  been 
made  to  have  the  statements  and  figures  contained  in 
it  accurate.  The  principal  sources  of  information  are  listed 
at  the  back  of  the  book.  All  of  the  statistical  data  used  in 
the  preparation  of  the  tables  has  been  obtained  from  official 
sources.  The  book  was  submitted  in  proof  forrn,  in  whole  or 
in  part,  to  many  distinguished  financial  and  economic  authori- 
ties in  France,  who  gave  the  proofs  critical  reading,  checked 
some  of  the  tables,  and  contributed  valuable  assistance.  This 
has  enabled  us  to  make  in  this  volume  the  first  complete 
comparative  statement  to  be  published  of  the  public  finance 
statistics  of  France  for  each  of  the  years  which  have  elapsed 
since  the  beginning  of  the  war  in  1914.  Desiring  to  relieve 
these  authorities  from  any  implication  of  responsibility  that 
the  specific  mention  of  their  names  might  entail,  we  content 
ourselves  with  expressing  generally  our  thanks  for  their  help, 
corrections  and  suggestions. 

We  will  feel  that  we  were  justified  in  asking  for  the  critical 
assistance  which  these  distinguished  French  authorities  have 
given  so  carefully,  and  that  our  purpose  in  publishing  this 
book  had  been  achieved,  should  it  contribute  to  a  more 
sympathetic  understanding  in  this  country  of  the  financial 
problems  that  France  had  to  solve  during  the  war,  and  of 
the  integrity,  courage  and  resourcefulness  with  which  she  is 
meeting  her  problems  of  today. 

Bankers  Trust  Company 
New  York  and  Paris 

July,  1922 

M633310 


Contents 


CHAPTER 
I 

11 

III 

IV 

V 

VI 
VII 

VIII 

IX 

X 

XI 

XII 

XIII 

XIV 

XV 

XVI 

XVII 

XVIII 

XIX 

XX 

XXI 

XXII 

XXIII 


PAGE 

The  "Armed  Peace"                       (1873-1914)  i 

The  Cost  of  the  Great  War          (1914-1919)  6 

How  France  Financed  the  War    (1914-1919)  13 

Post-War  Financing                       (19201921)  25 

The  Credit  Structure                      (1914-1921)  38 

Banking,  Currency,  Foreign  Trade  and  Foreign  Exchange. 

Behind  the  Lines  (1914)  68 
Life  and  Business  Under  Govern- 
ment Regulation  (191 5-1920)  75 
Devastation  and  Reconstruction  (1914-1921)  84 
Reparation  98 
Some  International  Comparisons  (1914-1922)  114 
The  Indemnity  or  War-Fine  of  1871  140 

(When  the  Shoe  Was  on  the  Other  Foot) 

How  France  is  Governed  152 

The  Budget  167 

National  Expenditures  180 

National  Revenues  184 

The  National  Debt  193 

Local  Finance  210 
The  Finances  of  Paris  and  of  The 

Department  of  the  Seine  212 

The  Administration  of  the  Finances  218 

History  of  the  Bank  of  France  229 
Functions  and  Operations  of  the 

Bank  of  France  253 
Ownership,  Government  and 

Home  of  the  Bank  of  France  274 

Unofficial  Corporate  and  Private  Banks  285 


Contents 

CHAPTER 

PAGE 

XXIV 

Credit  Foncier  de  France  (Mort- 

gage Bank  of  France) 

304 

XXV 

Agricultural  and  Popular  Banks 

315 

XXVI 

Savings  Banks 

328 

XXVII 

The  Fortune  of  France 

335 

For  Reference: 

337 

Quotations  of  Rentes,  Bank  of  France  stock.  Credit  Foncier  stock 
3.nd  bonds. 

Dividends  paid  by  Bank  of  France  and  Credit  Foncier. 

Authorities 

341 

Index 

349 

Where  money  statistics  are  given  in  francs  they  may 
readily  be  done  into  dollars  at  the  rate  of  5  francs  per  dollar 
when  exchange  is  at  par  (exact  parity  is  5.1826  francs  to  the 
dollar).  During  the  period  since  19 14  allowance  must  be 
made  for  varying  exchange  rates.  English  readers  will  bear 
in  mind  that  one  billion  =  1,000,000,000  :=  one  milliard  in 
France. 


French  Public  Finance 

In  the  Great  War  and  Today 


Chapter  I 
The  "Armed  Peace" 

1873-1914 

TAURING  the  four  decades  which  elapsed  between  the 
^^  Franco-Prussian  war  and  the  great  war,  the  nations  of 
Europe  expended  forty  and  a  half  billion  dollars,  gold,  upon 
their  military  and  naval  establishments; — an  average  of  ten 
billion  dollars  a  decade,  a  billion  a  yean 

The  Boer  war  cost  England  about  one  and  a  third  billion 
and  the  Japanese  war  cost  Russia  a  similar  amount,  while 
during  this  period  most  of  the  nations  of  Europe  had  little 
wars  or  disciplinary  expeditions  and  the  like.  However,  this 
does  not  materially  affect  the  fact  that,  in  the  main,  the 
military  expenditures  of  the  period  were  made  in  order  to  be 
ready  for  a  conflagration  which  all  alike  dreaded,  but  which 
they  feared  sooner  or  later  would  eventuate. 

Here  is  a  table  which  gives  the  cost  of  the  armed  peace  to 
each  of  the  six  great  nations  which  before  the  war  dominated 
Europe  and  in  fact  the  whole  eastern  hemisphere. 

[I 


2  ]  BANKERS  TRUST  COMPANY 

THE  COST  OF  THE  "ARMED  PEACE"  TO  THE  LARGER 

EUROPEAN  NATIONS 

1873-1913 

(In  dollars — 000,000  omitted) 

Army  Navy  Total 

Nation  Expenses    Expenses  Armed  Peace 

France    . $6,105  $2,463  c  $8,568 

Italy 2,163  847  3,010 

Russia  a 6,150  1431  7,581 

United  Kingdom  b 4,373  4,028  8401 

Austria-Hungary 2,478  296  2,774 

Germany 5,782  1,652  7,434 

Total — 41  years  ......    $27,051        $10,717       $37,768 

a  Deducting  the  cost  of  the  war  with  Japan,  $1,333  million. 
b  Deducting  the  cost  of  the  Boer  war,  |i,368  million. 

c  "Marine  and  Colonies."     Figures  not  segregated,  but  oflfidal  statement  from  which 
they  are  taken  includes  them  as  part  of  "the  military  expenses  of  our  country." 

The  direct  outlay  of  these  six  nations  for  military  expenses 
in  1873  was  $550,000,000.  This  expenditure  increased  to 
$1,894,000,000  in  1913.  Terrible  figures,  and  yet  how  in- 
significant when  compared  with  the  burden  of  the  past  seven 
and  a  half  years  and  of  the  permanent  charges  for  interest 
and  pensions  which  the  recent  war  has  left  to  be  handed  on 
to  generations  yet  unborn. 

To  obtain  the  full  story  of  the  pre-war  military  burden 
we  should  add  the  cost  of  military  pensions  paid  to  soldiers 
sailors  and  marines  of  the  standing  armies  and  navies,  largely 
the  legacy  of  previous  wars,  but  these  figures  are  not  readily 
available  for  all  of  the  countries  of  Europe.  We  know  that 
for  France  alone,  military  pensions  during  these  forty  odd 
years  totaled  about  $1,200,000,000. 

The  reader  must  not  think  that  this  closes  the  story  of 
the  military  burden.  We  have  still  to  add  the  heavy  load  of 
the  public  debts.   These  amounted  in  1913  for  the  six  nations 


FRENCH  PUBLIC  FINANCE  [  3 

to  $24,403,000,000,  calling  for  annual  interest  payments  of 
$869,000,000.  Sir  R.  H.  Inglis  Palgrave  estimated  the  debts 
of  all  countries  which  had  created  such  liabilities  to  have  been 
about  44  billion  dollars  at  the  close  of  191 2.  He  did  not 
estimate  the  interest  charge,  but  it  must  have  been  over  one 
and  a  half  billion  dollars.  The  largest  part  of  this  interest 
burden  was  on  account  of  that  portion  of  the  "dead  weight 
debt,"  as  the  English  treasury  statements  expressively  term 
the  permanent  debt,  which  was  incurred  in  the  prosecution 
of  past  wars,  although  an  important  part  was  incurred  to  pay 
armament  expenses.    How  much  cannot  be  put  into  figures. 

Cost  of  the  ^^  Armed  Peace'  to  France 

The  table  on  page  4,  which  compares  the  military  and 
other  expenses  of  France  in  1868,  two  years  before  the  Franco- 
Prussian  war,  with  those  of  subsequent  peace  years  tells  more 
in  detail,  the  story  of  the  military  burden  borne  by  the 
French  people  during  the  period  of  forty  odd  years  of  "armed 
peace"  which  elapsed  before  Germany  made  her  second  effort 
to  ruin  her  Gallic  neighbor. 

In  1868  the  military  expenses  of  France_amounted  to 
11%  per  cent,  of  the  total.  Following  the  war  of  1870  they 
fell  to  about  25  per  cent,  in  1873,  gradually  increasing,  decade 
by  decade,  until,  in  1913,  they  amounted  to  nearly  42  per 
cent,  of  the  total. 

Military  expenses  in  191 3  were  three  times  what  they 
were  in  1868,  while  other  governmental  expenses  in  191 3, 
were  about  two  and  one-half  times  what  they  were  at  the 
earlier  period.  Or  to  make  a  still  more  striking  comparison, 
the  peace  military  establishment,  as  early  as  1893  was  costing 
within  twenty-five  per  cent,  of  the  average  military  disburse- 
ments in  the  war  years   1870  and   1871,  while  the  peace 


4l 


BANKERS  TRUST  COMPANY 


FRENCH  EXPENSES— MILITARY  AND  CIVIL 

Peace  Establishment 

1868-1913 

(In  francs — 000,000  omitted.) 


Classification 

1868 

1873 

1883 

1893 

1903 

1913 

1913 

% 
1868 

Increase  over 
1868 

Actual 

Per 
Cent. 

Army 

Navy  and  Colonies 
Pensions  c     .    .    . 

461 

197 

S6 

482 

IS6 

85 

739 
279 
123 

650 
331 
144 

706 
408 
159 

1,262 
656 
192 

273.7 
332.9 
342.8 

801 
459 
136 

173.7 
232.9 

242.8 

Total  Military . 

%  Total.    .    .    . 
Debt  Charge     .    . 
All  Other  b   .    .    . 

714 
37.5 
382 
807 

723 

2S.2 
1,196 

955 

1,141 
30.7 
1,121 
1,460 

1. 125 

32.6 
1,039 

1,287 

1.273 

35-4 

924 

1.400 

2,110 
41.6 

958 
1.999 

295.5 

250.8 

247.7 

1.396 

44-1 

576 

1,192 

195.5 

150.8 

147.7 

Grand  Total.    . 

1.903 

2,874 

3,722 

3,451 

3.597 

S.067 

266.3 

3,164 

166.3 

a  Military  only,  including  Legion  of  Honor. 

b  For  items,  see  table  "National  Expenditures,"  page  182. 


military  disbursements  in  191 3  exceeded  that  war  average 
by  over  six  hundred  million  francs. 

National  Income  vs.  Cost  of  ^^  Armed  Peace' 

I  The  national  income  in  1913,  that  is  the  total  income 
of  the  French  people,  as  computed  by  the  well-known 
French  economist,  M.  Rene  Pupin,  was  37>^  billion  francs 
or  seven  and  a  half  billion  dollars.  In  1868,  estimating  on 
the  basis  of  the  returns  upon  which  the  inheritance  taxes  are 
levied,  the  national  income  was  around  20  billion  francs  or 
four  billion  dollars.  Therefore  the  actual  burden  of  the 
military  peace  establishment  of  714,000,000  francs  (say 
^£40,000,000)  in  1868  was  about  3^  per  cent,  of  the  nadonaL 
income,  while  in  191 3  the  then  military  burden  of  over 
2,100,000,000  francs  (say  $420,000,000),  was  over  5>^  per 
cent,  of  the  greater  national  income. 


FRENCH  PUBLIC  FINANCE  [  5 

From  every  angle  of  observation  the  burden  of  the  "armed 
peace"  was  becoming  each  year  harder  to  bear,  but  as  we 
have  seen,  this  was  so  not  for  France  alone,  but  for  all  of 
the  European  nations.  The  limit  of  endurance  had  about 
been  reached,  either  the  policy  of  piling  up  expenditure  for 
armaments  must  stop  for  lack  of  means  to  meet  them  or  the 
whole  volatile  mass  might  some  day  be  exploded  by  a  small 
spark.   The  latter  tragedy  eventuated. 


Chapter  II 

The  Cost  of  the  Great  War 
1914-1919 

A  N  official  report  of  the  American  War  Department  states 
^  ^  that  the  recent  world  war  was  undoubtedly  the  blood- 
iest which  has  ever  been  fought  and  that  *'the  total  battle 
deaths  were  greater  than  all  of  the  deaths  in  all  wars  for 
more  than  one  hundred  years  previous." 

Over  7,500,000  soldiers  lost  their  lives  when  in  action  or 
as  a  result  of  wounds  received  in  battle,  nearly  17,000,000 
more  were  wounded,  and  over  6,700,000  were  reported  missing 
or  in  prison.  Thus  the  total  casualties  were  just  under 
32,000,000,  about  fifty-five  per  cent,  of  the  57,400,000 
men  mobilized. 

There  were  nearly  39  million  men  mobilized  on  the  side 
of  the  Entente.  \  ranee  provided  nearly  20  per  cent,  of  these, 
just  20  per  cent,  of  her  population.  During  the  period  of 
Russia's  active  participation  in  the  war  she  had  more  men 
mobilized,  but  these  composed  only  about  seven  per  cent, 
of  her  population.  France  led  all  of  the  allies  in  the  per- 
centage of  her  men  called  to  the  colors. 

The  battle  ae  ichs  on  the  part  of  the  Entente  Allies  were 
4,804,000,  12.35  per  cent,  of  the  men  mobilized.  France  lost 
in  battle  or  as  a  result  of  wounds  nearly  i8>^  per  cent,  of 
her  mobilized  men,  a  greater  percentage  than  in  the  case  of 
any  other  nation  Russia  lost  nearly  15  per  cent,  of  the  men 
mobilized  but  a  much  smaller  percentage  of  those  whom  she 
might  have  mobilized.  Great  Britain  came  next  with  a  loss 
of  twelve  per  cent,  of  her  mobilized  forces. 

6] 


FRENCH  PUBLIC  FINANCE 


[7 


On  the  other  side  the  battle  deaths  were  2,750,000,  not 
quite  15  per  cent,  of  the  mobihzed  forces.  Germany  lost 
1,600,000  men,  16  per  cent  of  those  mobilized. 

Further  details  are  given  in  the  following  table: 

COST  OF  THE  GREAT  WAR  IN  MEN 

1914-1919 

Killed,  Wounded  and  Missing 

(000  omitted) 


Popula- 
ton 

Armies 
Mobi- 
lized 

Battle  Deaths 

•a 
a 

1 

Miss- 
ing or 
Pris- 
oners 

Total  Casualties 

Entente 
Allies 

Battle 
Deaths 

^0 
Pop- 
ula- 
tion 

Armies 
Mobi- 
lized 

Total 
Casu- 
aties 

Pop-Amuea 
ula-    Mobi- 
tion    lized 

France.    .    .    . 
Italy    .    .    .    . 
Russia      .    .    . 
British 

Empire*  .    . 
United  States . 
Other  '       .    . 

38,000 
36,000 

*I70,000 

54.900 

106,000 

77.100 

7,500 

5.500 

11,500 

7,500 
4,000 
2,897 

^1.385 

330 

1,700 

900 

50 

439 

3.60 
o.go 
1 .00 

1.64 
0.05 
0.57 

18.46 

6.00 

14-78 

12.00 

1.25 

1 5. 1 1 

2,67s 

947 

3.000 

2,200 
237 
346 

446 
1,393 
2,000 

400 

36^ 

4.S06 
2,800 
6,700 

3.500 

290 

I,i8s 

11.88 
7.78 
3.94 

6.37 
0.27 
1.54 

60.08 
50  00 
58.26 

46.66 

7-25 

40.90 

Total    .    .    . 

482,000 

38,897 

4,804 

0.99 

12.35 

9,405 

4,607 

18,981 

j.pjj  48.81 

Central  Powers 
Germany.    . 
Another.  . 

61,000 
79.000 

10,000 
8,500 

1,600 
1,150 

2.62 
1.45 

16.00 
13.52 

3.683 
3.850 

770 
1.352 

6.053 
6,352 

9.92 
8.04 

60.53 
74.72 

Total    .    .    . 

140,000 

18,500 

2,750 

1.96 

14.86 

7,533 

2,122 

12,405 

8.86 

67.05 

Grand  Total  . 

622,000 

57,397 

7,554 

1 .21 

13.16 

16,938 

6,729 

31,386 

5.04 

54.68 

1.  This  table  adapted  from  table  in  Encyclopedia  Americana,  which  in  turn  is 
stated  to  be  based  on  official  estimates  of  the  United  States  War  Department  made  in 
May,  1919. 

2.  1917;  Russian  co-operation  ended  in  October  of  that  year. 

3.  Active  participants. 

4.  Later  figures  give  the  total  losses  of  France  as  1,325,000  viz.:  Killed  in  battle 
674,700;  died  of  wounds,  250,000;  unaccounted  for,  225,300;  died  of  illness,  175.000. 

5.  Native  populations  not  included. 


The  Money  Cost  of  the  War 

It  is  doubtful  whether  the  true  cost  of  the  war  to  all  of 
the  belligerents  will  ever  be  definitely  known.  Statistics 
such  as  would  be  required  by  a  public  accountant  in  order 


8 ]  BANKERS  TRUST  COMPANY 

to  certify  to  the  correctness  of  a  statement  are  not  now 
available.    Probably  they  never  will  be  obtainable. 

Some  of  the  nations  which  entered  the  war  no  longer  exist. 
The  status  of  others  has  been  greatly  changed.  Russia  is  in  the 
hands  of  the  Bolshevists  and  very  likely  they  have  destroyed 
her  books  of  account.  In  any  event  her  accounting  system  is 
thoroughly  dislocated.  The  former  Central  Powers,  Germany 
excepted,  have  not  published  statements  for  the  war  period. 

In  the  case  of  France  we  have  only  the  budget  appropria- 
tions as  a  guide,  as  the  actual  expenditures  for  the  war  years 
have  not  yet  been  published. 

We  have  made  a  careful  study  of  all  available  data,  actual 
figures  where  published,  appropriations,  increase  in  public 
debts  and  official  and  semi-official  statements  made  from 
time  to  time  in  the  parliaments,  in  the  public  press  and 
otherwise.  As  a  result  of  this  study  we  are  led  to  believe 
that  the  gross  direct  money  cost  of  the  war  approximated, 
perhaps  exceeded,  223  billion  dollars,  apportioned  about  140 
billion  to  the  Entente  Allies  and  the  United  States  and  about 
83  billion  to  the  former  Central  Powers.  In  these  totals 
inter-ally  loans  are  eliminated. 

These  figures  are  obtained  by  converting  the  estimated 
expenses  for  each  country  from  their  national  currencies  into 
dollars  at  the  par  of  exchange.  That  is  the  franc  and  the  lira 
are  valued  at  19.3  cents,  the  pound  sterling  at  $4.86,  the 
mark  at  23.8  cents,  and  so  on. 

However,  in  view  of  the  depreciation  in  the  purchasing 
power  of  all  currencies,  it  is  necessary  in  order  to  obtain  an 
accurate  statement  of  the  cost  of  the  war  to  reduce  the 
statistics  to  some  common  basis.  Especially  is  this  necessary 
if  we  are  to  institute  comparisons  between  the  statements  of 
the  different  nations. 


FRENCH  PUBLIC  FINANCE  [  9 

No  absolutely  scientific  basis  has  been  devised  for  obtain- 
ing a  common  denominator  for  this  purpose.  Still  we  will  be 
in  good  company  if  we  follow  in  the  footsteps  of  economists 
and  statisticians  who  have  made  a  comparative  study  of 
commodity  prices  and  have  devised  what  are  known  as  "price 
index  numbers."  These  numbers  are  based  upon  a  combina- 
tion and  averaging  of  the  prices  of  groups  of  commodities 
which  enter  into  common  use.  The  prices  of  the  year  1913 
are  taken  as  normal,  at  any  rate  as  prices  not  affected  by 
war  conditions.  These  prices  are  taken  as  a  base  (100%) 
and  the  prices  for  subsequent  years  are  estimated  in  per- 
centages of  the  base  price.  Thus  it  is  possible  to  determine 
to  what  extent  prices  were  increased  by  the  war  demand  for 
commodities  and  especially  how  they  were  inflated  by  the 
great  increase  in  the  currencies  and  other  credit  facilities 
developed  in  financing  the  war. 

We  have  used  these  price  index  numbers  to  reduce  the  war 
expenditures  of  each  year  to  the  1913  base.  That  is  to  deter- 
mine what  the  cost  of  each  year's  expenditure  for  armaments 
and  for  paying,  feeding  and  clothing  the  soldiers  would  have 
been  if  prices  had  not  advanced  above  what  they  were  in 
191 3.  This  estimate  was  made  separately  for  each  nation 
engaged  in  the  war  and  then  the  figures  were  combined. 

The  "boiled  down"  cost  of  the  war  as  thus  arrived  at, 
what  may  be  called  the  pre-war  gold  basis  cost,  is  ^84,045- 
000,000;  $53,883,000,000  for  the  Entente  Allies  and  the 
United  States  and  $30,162,000,000  for  the  former  Central 
Powers. 

On  the  side  of  the  allies  the  United  Kingdom  led  with  an 
expenditure  of  over  20  billion  dollars;  then  came  the  United 
States  with  an  outlay  of  15  biUion  dollars  and  then  France 
with  12^  billion.    However,  in  addition  to  her  direct  war 


lO]  BANKERS  TRUST  COMPANY 

expenditure  France,  due  to  the  fact  that  the  heaviest  fighting 
of  the  war  was  on  her  territory,  suffered  property  losses 
officially  estimated  in  1920  at  140,607  million  francs  which 
we  may  take  to  be  about  five  billion  dollars  gold;  prices  in 
1920  being  about  six  times  191 3  prices.  Thus  the  gold  cost 
of  the  war  to  France  plus  the  property  damages,  say  17^ 
billion  dollars  all  told,  was  equivalent  to  30^  per  cent,  of 
her  pre-war  national  wealth.  England's  war  expenses  on  a 
gold  basis  were  about  28^  per  cent.;  Italy's  15^  per  cent, 
and  Russia's  about  13  per  cent,  respectively  of  their  estimated 
pre-war  wealth.  The  table  on  the  opposite  page  will  be  found 
to  repay  careful  study. 

The  Continuing  Burden  of  Interest  and  Pensions 

Great  as  was  the  money  cost  of  the  war  as  shown  by  this 
table,  it  was  not  so  serious,  after  all,  as  is  the  perpetual 
burden  of  interest  and  pensions  which  the  war  has  entailed. 
It  will  be  some  time  yet  before  pension  accounts  are  adjusted 
and  the  annual  payments  fully  determined.  For  France 
alone,  pensions  on  this  account  are  now  amounting  to  around 
$117,000,000;  while  the  interest  upon  her  war  debt,  exclusive 
of  the  debt  to  her  allies,  is  calling  for  the  equivalent  of 
$1,767,000,000.  This  does  not  include  interest  on  the  debts 
to  the  governments  of  the  United  Kingdom  and  the  United 
States  which,  figured  at  5  per  cent.,  is  accruing  at  the  rate 
of  around  $300  million  a  year. 

The  war  left  England  with  an  increased  debt  charge,  exclud- 
ing intcest  on  her  debt  to  the  United  States  accruing  at  the 
rate  of  about  $200,000,000  a  year,  equal  to  about  $1,500,000,- 
000  and  with  additional  pension  payments  of  around  five 
hundred  million.  Italy  has  to  cope  with  an  increased  debt 
charge,   not  including  interest  at  the  rate  of  about  $200 


FRENCH  PUBLIC  FINANCE 


II 


MONEY  COST  OF  THE  GREAT  WAR 
1914-1919 
(In  dollars — 000,000  omitted)      


I 

II 
Adjusted 

T^?, 

III 

IV 

Cost 
1913 

to  1913 

Cost 

Basis 

At  par 

Purchas- 

Total 

Popu- 

Per 

Pre-War 

(Col.  II), 

Entente 

of 

mg 

on 

lation 

Capita 

National 

Percent. 

Allies 

Curren- 

Power of 

1913 

1920 

1913 

Wealth 

National 

cies 

Curren- 
cies 

Basis 

Basis 

Wealth 
(Col.  IV) 

$ 

$ 

$ 

1 

France 

37.588 

12.430 

19.73 

38 

327 

57.900 

21.5 

Italy 

14.794 

3.391 

5.38 

36 

94 

21,600 

15.7 

Russia  a 

20.500 

7.913 

12-57 

170 

47 

60,000 

13.2 

United  Kingdom    . 

48.944 

20.030 

31 -So 

46 

434 

70.500 

28.4 

United  States.    .    . 

33.456 

14.969 

23  77 

106 

141 

200,000 

7-5 

Other  Active 

Participants    .    . 

8,500 

4.250 

6.75 

86 

49 

30,000 

14.2 

Total 

163,782 

62,983 

100.00 

482 

131 

440,000 

14.3 

Deduct   Inter  Ally 

Loans  h    .    .    .    . 

23.658 

9.100 

Net  Total    .    .    . 

140,124 

53,883 

482 

112 

440,000 

12.2 

Central  Powers 

Germany     .    .    . 

49,362 

19.316 

64.04 

61 

317 

80.S00 

23.9 

All  Other  c      .    . 

33.985 

10.846 

35.96 

79 

137 

38.000 

28.5 

Total 

83,347 

30,162 

100.00 

140 

215 

118,500 

25.5 

Grand  Total   .    .    . 

223,471 

84,045 

622 

135 

558,500 

15.0 

a  Ceased  to  co-operate  in  October,  1917- 

b  The  amount  deducted  in  column  I  is  the  grand  total  of  page  136, 124,963  million, 
less  relief  loans  and  market  loans. 

c  Deducting  $2,375  million  for  advances  from  Germany. 

I.  In  each  case  the  figures  are  for  the  period  elapsed  from  the  time  the  nation 
became  a  belligerent  until  the  close  of  the  fiscal  year  1919  or  1919-1920.  While  the 
fighting  ended  with  the  armistice,  the  war  expenses  did  not  stop  for  several  months 
later,  as  the  armies  were  not  immediately  disbanded  and  much  material  ordered  still 
had  to  be  accepted  and  paid  for.  From  the  total  expenses  of  each  nation  a  deduction 
is  made  of  an  amount  equivalent  to  the  pre-war  annual  expense  multiplied  by  the 
number  of  years  the  nation  was  in  the  war,  the  balance  is  taken  to  be  the  expenditure 
due  to  the  war.  The  figures  are  from  official  or  semi-official  sources;  except  Russia, 
from  Boris  Eliacheff's  "Les  Finances  de  la  Guerre  de  la  Russe"  and  except  "other 
Entente  Allies"  and  "other  Central  Powers"  which  are  necessarily,  in  some  cases,  very 
rough  approximations. 

II.  These  figures  are  obtained  by  dividing  the  expenses  of  each  nation  for  each 
year,  as  given  in  Column  I,  by  the  wholesale  "price  index  numbers"  which  give  the 
prices  of  each  year  as  a  percentage  of  19 13  wholesale  prices.  The  index  numbers  used 
were  For  France,  that  of  the  government  statistical  bureau;  Italy,  Professor  Bachi's 
number;  Russia,  estimated  on  basis  of  study  by  Boris  Eliacheflf  in  "Les  Finances  de  la 
Guerre  de  la  Russe";  United  Kingdom,  Statist  number;  United  States,  Bureau  of 
Labor  number;  Germany;  the  oflScizd  number. 

III.  Statesman's  Year  Book,  checked  by  census  figures  where  available. 

IV.  Sir  J.  C.  Stamp — National  Wealth  and  Income  of  the  Chief  Powers;  Journal 
Royal  Statistical  Society.  July,  1919.  with  some  adjustments;  except  "all  other"  which 
are  roughly  approximated. 


12  ]  BANKERS  TRUST  COMPANY 

million  a  year  on  her  debts  to  the  United  States  and  the 
United  Kingdom,  of  around  $801,722,000  and  additional 
pension  payments  of  over  $300,000,000.  Our  United  States 
expended  $104,671,000  on  veterans  vocational  training  alone 
in  the  fiscal  year  ended  June  30,  1921.  We  face  an  expenditure 
for  the  new  veterans  bureau  and  for  vocational  training  of 
$443,000,000  in  the  fiscal  year  ended  June  30,  1922,  while 
similar  expenses  for  the  following  year  are  estimated  at 
$461,000,000.  This  is  quite  apart  from  the  proposed  soldiers* 
bonus  which,  if  granted,  will  run  into  ten  figures.  Our  war 
interest  burden  for  the  year  ended  June  30,  1922,  was 
$964,000,000.  Thus  we  find  the  total  annually  recurring 
burden  due  to  the  war,  to  the  principal  European  entente 
nations  and  to  the  United  States,  for  interest  and  pensions 
alone,  expressed  at  exchange  parities,  to  be  about  $6,413,- 
000,000,  which  amount  is  exclusive  of  around  $700,000,000 
more  accruing  on  inter-governmental  debts. 

This  does  not  take  into  account  the  greatly  increased  cost 
of  civil  governme.nt  entailed   as  an  aftermath  of  the  wai% 
Investigation  shows  that  following  past  wars  such  expensei^ 
have  tended  to  establish  a  new  level  well  above  the  pre-warv 
basis.   Every  indication  is  that  the  same  conditions  will  result/ 
in  the  present  instance. 


Chapter  III 

How  France  Financed  the  War 

1914-1919 

FRANCE  financed  the  extraordinary  expenses  of  the  war 
period  by  borrowing  in  various  forms. 
The  borrowing  took  three  forms.  The  first  line  of  financial 
defense  was  found  in  the  Bank  of  France  and  its  note  issuing 
power.  Next  came  the  treasury  bills  which,  in  the  end, 
proved  to  be  perhaps  the  chief  reliance  of  the  treasury. 
Finally  there  were  the  short  term  bonds  of  national  defense 
and  the  great  funding  loans.  We  will  consider  these  in  the 
order  named. 

The  Bank  of  France 

In  ordinary  times  it  is  understood  that  the  government 
shall  not  borrow  from  the  bank,  but  when  war  comes  then 
the  bank  stands  shoulder  to  shoulder  with  the  government. 
This  was  notably  the  case  in  1870-1871  when  the  bank 
advanced  to  the  state  nearly  1,500  million  francs,  say 
300  million  dollars.  By  an  agreement  made  in  November, 
191 1,  the  bank  had  promised  in  case  war  ever  were  to 
break  out  to  put  at  the  disposal  of  the  government  for 
purposes  of  mobilization  a  sum  of  2,900  million  francs, 
while  the  Bank  of  Algeria  had  similarly  promised  100  million 
— say,  in  all,  600  million  dollars  American  money.  This 
agreement,  ratified  August  14,  1914,  was  modified  from  time 
to  time  as  the  exigencies  of  the  war  required. 

The  portfolio  of  the  bank  in  normal  times  contains  only 
commercial  bills  of  three  months  maturity  at  the  most.    It 

[13 


14  ]  BANKERS  TRUST  COMPANY 

also  makes  advances  on  collateral  securities  of  a  quickly 
marketable  character.  The  affairs  of  the  bank  thus  are  always 
in  a  liquid  condition,  so  that  when  emergencies  arise  it  is  in  a 
position  easily  to  cope  with  them. 

The  great  resource  of  the  bank  at  such  times  of  emergency 
is  its  note  issuing  power.  Ordinarily  the  notes  are  almost  a 
specie  certificate,  as  the  bank  always  has  a  large  specie  re- 
serve, which,  while  not  especially  "ear  marked"  against  its 
note  issues,  is  usually  thought  of  in  that  connection. 

Let  us  note  here  the  fact  that  in  the  first  five  months 
of  the  war  the  bank  advanced  to  the  nation  ^753,000,000; 
in  191 5  the  advances  at  one  time  reached  as  high  as 
$1,430,000,000;  in  19 1 6  they  reached  a  maximum  from  the 
beginning  of  the  war  of  $1,890,000,000,  and  in  1917  of 
$3,073,000,000,  finally  climbing  in  19 19  to  an  aggregate  of 
^5>753)CKX>,ooo  from  the  beginning  of  the  advances  in  1914. 
The  advances  fluctuated  from  time  to  time,  being  reduced 
as  the  treasury  came  into  funds  from  sales  of  notes  or  bonds, 
or  from  revenue  receipts,  and  increased  again  as  the  emer- 
gency required. 

On  the  other  hand  the  bank  increased  its  note  issue  during 
this  same  period  by  some  six  billion  dollars.  The  treasury 
leaned  very  heavily  on  the  bank  during  1914,  drawing  from 
it  around  40  per  cent,  of  its  requirements.  After  that  year 
less  dependence  was  placed  upon  the  bank.  For  the  entire 
period  of  active  war  financing,  that  is  to  the  end  of  1919, 
advances  from  the  bank  constituted  from  ten  to  fifteen  per 
cent,  of  the  total  receipts  from  all  sources. 

In  addition  to  its  direct  advances  to  the  state,  the  bank 
arranged  to  discount  for  the  government  treasury  bonds 
issued  to  provide  for  loans  to  foreign  governments.  This 
item  first  appears  in  the  bank  statement  for  March  11,  1915; 


FRENCH  PUBLIC  FINANCE  [  1 5 

— an  item  of  ^14,000,000.  By  the  end  of  1919  it  had  reached 
the  important  total  of  ^725,000,000,  thus  bringing  the  total 
advances  to  the  state  and  for  its  account  at  that  date  up  to 
$5,653,000,000. 

The  bank  also  was  a  most  important  factor  in  stimulating 
subscriptions  to  the  various  issues  of  bonds  and  notes  made 
by  the  state  and  in  arranging  international  credits. 

The  Treasury  Bills 

One  of  the  most  efficient  instruments  for  keeping  the  war 
chest  filled  was  found  to  be  the  treasury  bills,  very  felicitously 
re-named  by  M.  Ribot,  the  minister  of  finance  during  the 
early  part  of  the  war,  "National  Defense  Bills."  The  change 
of  name  was  determined  upon  in  September,  1914.  The  new 
bills  were  at  first  issued  in  denominations  equivalent  to  $20, 
$100,  and  $200.  At  a  later  date  these  bills  were  issued  in  as 
small  denominations  as  five  francs  and  twenty  francs  (one 
and  four  dollars)  to  fit  the  requirements  of  the  smallest  invest- 
or, and  in  various  larger  denominations  to  meet  the  needs  of 
banks  and  other  wholesale  investors.  At  first  they  were  issued 
at  a  discount  which,  when  the  note  was  repaid  at  par,  gave 
the  bearer  a  return  from  the  earlier  issues  at  the  rate  of  about 
5>^  per  cent,  a  year.  The  rate  was  readjusted  from  time  to 
time  as  conditions  seemed  to  require.  On  March  12, 1922,  it 
was  made  \%  per  cent. 

The  name  of  the  bills  caught  the  fancy  of  the  people  and 
as  they  were  obtainable  every  where  that  there  was  a  branch 
of  the  Bank  of  France,  from  banks  generally  and  even  at  the 
post  offices,  they  became  from  month  to  month  more  popular 
and  proved  to  be  particularly  well  adapted  to  drawing  money 
from  the  well-filled  woollen  stocking  of  the  working  classes. 
They  were  also  sought  for  by  the  richer  people  and  by  the 


l6  ]  BANKERS  TRUST  COMPANY 

banks.  Thus  the  erst-while  aristocratic  treasury  bills,  which 
theretofore  had  only  gone  into  the  strong-boxes  of  the  banks, 
achieved  as  "national  defense  bills"  a  nation-wide  circula- 
tion and  to  a  limited  extent  an  international  market.  These 
bills  were  at  first  issued  to  mature  in  three  or  six  months  or  a 
year.  Later,  bills  of  one  month's  maturity  also  were  issued. 
Three  hundred  and  twelve  million  dollars  worth  were  ab- 
sorbed in  1 914.  In  the  next  year  and  the  year  following 
there  were  respectively  net  additions  to  the  amount  out- 
standing of  some  ^839,000,000  in  191 5  and  ^1,089,000,000 
in  1916,  while  in  1917  the  net  increase  was  $1,345,000,000. 
In  191 8,  on  November  30,  the  outstanding  issue  had  increased 
the  equivalent  of  $2,590,000,000  to  $6,357,000,000.  This 
amount  was  reduced  nearly  two  billion  in  December  from 
the  proceeds  of  a  new  permanent  loan.  The  issues  steadily 
increased  during  the  following  year  reaching  about  nine  and 
a  half  billion  dollars  worth  by  the  close  of  1919;  an  important 
part  of  them  hidden  away  in  the  homes  of  the  people.  They 
provided  for  nearly  29  per  cent,  of  the  war  expenditures. 

The  popularity  of  these  bills  was  greatly  increased  by  the 
fact  that  the  Bank  of  France  agreed  to  accept  them  as 
security  for  loans  at  80  per  cent,  of  their  nominal  value. 
Thus  they  were  a  particularly  liquid  asset  for  people  in  busi- 
ness, either  large  or  small,  and  for  institutions  of  credit. 

The  Funded  Debt 

In  February,  191 5,  a  new  form  of  short  term  bonds  was 

placed  on  sale.   These  bonds,  known  as  "Bonds  of  National 

efense,"  had  a  currency  often  years  and  were  well  received, 

ut  they  never  achieved  the  popularity  accorded  to  the  bills 

similar  name.   The  first  issue,  bearing  5  per  cent,  interest, 


FRENCH  PUBLIC  FINANCE  [  1 7 

was  placed  at  96^,  reimbursable  at  par  upon  maturity,  in 
1925  or  in  1920,  if  the  right  of  redemption  at  that  time  were 
exercised.  The  bonds  were  issued  free  of  taxation.  This 
first  issue  brought  into  the  treasury  the  equivalent  of  over 
$539,000,000.  However,  quite  a  large  part  of  this  amount, 
around  $150,000,000,  was  received  in  old  bond  issues  taken 
in  payment.    Subsequent  issues  were  placed  in  1917  and  1919. 

It  was  not  until  November,  191 5,  that  the  first  great  war 
loan  was  offered  to  the  public.  This  issue  was  made  in  what 
French  writers  speak  of  as  the  "classic  form."  By  this  they 
mean  that  bonds  were  issued  without  fixed  maturity  date — 
perpetual  rentes  as  they  are  called — free  of  taxation  and  at 
a  discount  from  par.  The  French  investor,  over  a  period  of 
many  years,  had  become  familiar  with  this  form  of  state 
obligation.  The  rate  of  interest  was  placed  at  5  per  cent,  and 
the  issue  price  at  88,  or  to  yield  about  5^  per  cent.  Sub- 
scriptions were  payable  in  cash  or  in  bills  or  bonds  of  national 
defense,  or  in  the  existing  33^  per  cent,  rentes,  while  deposi- 
tors in  savings  banks  were  permitted  to  use  their  deposits  in 
paying  for  subscriptions  up  to  at  least  one-half  of  the  same. 
In  addition  subscribers  might  pay  one-third  of  their  sub- 
scriptions in  3  per  cent,  rentes  to  be  taken  at  66  per  cent. 
In  off'ering  this  issue  M.  Ribot,  the  minister  of  finance, 
spoke  of  the  bonds  as  "this  old  type  of  rente  5  per  cent., 
known  to  our  ancestors  and  always  popular."  The  exemption 
from  taxation  was  regarded  as  the  sine  qua  non  of  a  success- 
ful flotation.  M.  Ribot  called  upon  the  "army  of  French 
money  reserves  to  arise  and  join  its  efforts  to  those  of  that 
other  army  at  the  front." 

Everything  possible  was  done  to  popularize  the  loan  and 
to  make  it  easy  to  subscribe.   The  books  opened  on  Novem- 


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18 


FRENCH  PUBLIC  FINANCE  [  I9 

ber  25,  19x5,  and  closed  on  December  15.  The  subscriptions 
at  par  totaled  ^2,934,000,000.  The  money  value  in  cash  and 
securities  totaled  ^2,568,000,000.  Of  this  latter  amount  the 
sum  of  about  $1,213,000,000  was  in  cash  and  the  balance 
in  securities.  Thus  it  was  possible  temporarily  to  reduce 
the  debit  at  the  Bank  of  France  by  over  $400,000,000, 
while  $437,000,000  national  defense  bills  and  $614,000,000  of 
national  defense  bonds  were  retired.  Exchanges  of  3  per  cent 
and  2,^2  per  cent,  rentes  accounted  for  the  remainder.  Quite  a 
few  of  the  bonds  were  taken  abroad,  perhaps  as  many  as 
$200,000,000  worth.  There  were  3,130,000  subscribers,  nearly 
one-third  of  whom  lived  in  Paris. 

There  were  three  other  great  loans  placed  during  the  war 
period  aggregating  at  par  $11,136,000,000.  They  brought 
into  the  treasury  the  equivalent  of  $8,193,000,000  either  in 
cash  or  in  other  national  securities. 

In- France,  as  in  other  countries  engaged  in  the  war,  one 
of  the  main  purposes  of  the  permanent  war  loans  was  to 
fund  the  various  forms  of  short  indebtedness  before  they 
became  unwieldy  and  thus  to  keep  the  banks,  and,  in  France, 
the  public  as  well,  free  to  respond  daily  to  the  daily  needs 
of  the  treasury.  The  table  opposite,  entitled  "Permanent 
War  Loans"  and  the  chart  on  page  20  show  to  what  extent 
this  was  accomplished  and  also  how  much  new  money  the 
permanent  loans  brought  into  the  treasury.  This  table  gives 
the  amounts  of  bonds  originally  issued.  There  have  been 
many  subsequent  changes  due  to  re-purchases  of  bonds  on 
the  bourse  for  government  account  or  to  the  acceptance 
of  bonds  of  one  loan  in  part  payment  for  bonds  of  a  new 
loan.  The  amounts  outstanding  at  the  close  of  1921  may  be 
found  by  reference  to  the  tables  on  pages  202  and  203. 


□  discount 

OTHER  BONDS 


TREA5URY  BILLS 
CASH 


35 


III 


Z 
< 


55  1915    52-i3ie   4--1917    4- 1918    5^  1920    6§  1320 


PERMANENT  WAR  LOANS— HOW  PAID  FOR 

Data  in  francs  at  par — Figures  in  "Discount"  space  indicate  percentage  of  discount 
at  which  bonds  were  sold.    See  table,  page  i8. 

20l 


FRENCH  PUBLIC  FINANCE  [  21 

Summary  of  Expenditures  and  Resources 

As  yet  no  definitive  account  has  been  published  giving 
in  complete  form  the  expenditures  and  receipts  of  the  war 
period,  the  last  issue  of  the  annual  reports  of  the  ministry 
of  finance  being  for  the  year  1914.  -Therefore,  for  the  ex- 
penses from  1914  to  1919  we  are  compelled  to  use  the  state- 
ments of  appropriations  voted  from  time  to  time  by  parliament 
and  for  the  expenses  of  1920  and  1921  and  for  the  receipts 
for  the  entire  period  preliminary  statements  which  are  subject 
to  further  revision  before  arriving  at  their  final  audited 
form.  We  are  indebted  to  the  ministry  of  finance  for  the 
data  used. 

It  is  difficult  to  draw  a  hard  and  fast  line  between  the 
war  period  and  the  post-war  period  as  many  of  the  military 
expenses  due  to  the  war  are  even  yet  in  course  of  settlement. 
However,  the  more  important  expenses  of  the  war  may  be 
said  to  have  terminated  in  the  year  1919. 

Keeping  in  mind  the  fact  that  we  are  dealing  with 
estimates,  and  not  with  definitive  figures,  we  find  that  for 
the  war  period  the  expenses  aggregated  above  forty-three 
billion  dollars  on  a  currency  basis;  approximately  eighteen 
and  a  third  billion  on  the  basis  of  pre-war  money  values.  This 
latter  figure  is  arrived  at  by  dividing  the  actual  figures  for 
each  year  by  the  index  numbers  of  wholesale  prices  taken  as  a 
percentage  of  1913  prices.  In  this  way,  as  explained  before, 
on  page  9,  we  are  able  to  adjust  the  figures  to  the  1913  pur- 
chasing power  of  money.  The  reader  should  bear  in  mind 
that  in  this  paragraph  we  are  deahng  with  the  total  expen- 
ses of  the  war  period  while  in  the  table  on  page  11,  we 
are  estimating  the  increased  expenses  which  the  war  caused 
France  and  other  countries;  that  is  the  total  expenditure 


22] 


BANKERS  TRUST  COMPANY 


EXPENDITURES 


EXPENDITURES  AUTHORIZED  AND 
RESOURCES  REALIZED 

1914-1921 
(In  francs — 000,000  omitted) 


[Statistical  data  from 
Ministry  of  Finance 


Year 

Debt 
Charge 

Other 
Civil 

War 

Recon- 
struction 

Debit 

Balance 

Special 

Accounts 

Total 

1914  ....... 

1915 

1916 

1917 

1918 

1919 

1,360 
1.83s 
3.434 
4.96s 
7.189 
8,089 

2,005 
2,479 
2,817 
4.129 
S.482 
9,758 

6,894 
16,594 
26,348 
31.895 
41.370 
23.375 

4 

15 

345 

689 

495 

9.604 

108 
1,197 
3.904 
2,983 
2,113 
3.387 

10,371 
22,120 
36,848 
44.661 
56,649 
54.213 

War  Period  .... 

1920 

1921 

26,872 

26,670 

146,476 

11,152 

13,692 

224,862 

15,201 
16,000 

11,855 
10,778 

10,286 
8,702 

15,709 
13.829 

5.092 
2,714 

58.143 

52.023 

Post  War  Period      . 

31,201 

22,633 

18,988 

29,538 

7,806 

110,166 

(Si-and  Total     .    .    . 

58,073 

49,303 

165,464 

40,690 

21,498 

335,028 

RESOURCES  a 

Revenue  Receipts 
1914-1919    .    .    . 

37.821 

1920  and  1921  (viz:  1920,  19, 

J21;  1921, 2 

I.S43)     . 

41.364 

Total  Revenue  1 

Receipts  from  Bor 

Permanent  Loans 

Floating  Debt 

Bank  of  France 

Treasury  Bills,  l 

fleceipts    . 

ElOWING  TO 

79,185 

Decembeh 

131.  1921 

104,092 

24,600 

^tc.      .     .     . 

61,741 

Total  Internal  Loa 
Foreign  Loans  c 

Total  Borrowing  R 
Grand  Total  Receipt 

Authorized  Expendit 

ins     .    .    . 

190,433 
35.563 

eceipts     . 
s    .    .    .    . 

225,996 

305,181 

ure  in  Exc 

ess  of  Rece 

ipts  b  .    . 

29,847 

a  For  details  see  table  "Receipts  From  All  Sources,"  page  31. 

h  In  the  absence  of  final  data,  the  two  sides  of  the  account  cannot  be  reconciled. 
Apparently  this  excess  of  "expenditures  authorized"  above  "receipts  realized"  repre- 
sents expenditures  authorized  but  not  made  and  for  which  it  was  therefore  not  neces- 
sary to  provide  resources. 

c  Francs  realized  at  par  of  exchange.  The  nominal  realization  was  not  much 
greater  as  most  of  these  loans  were  effected  before  the  marked  depreciation  in  quota- 
tions of  franc  exchange  in  New  York  and  London.    See  pages  S3  to  60. 


FRENCH  PUBLIC  FINANCE 


[23 


RESOURCES     AND 
AUTHORIZED     EXPENDITURES 


1 

2 
3 
4 
5 

7 
8 
9 
10 


unadjusted 
foreign    loans 
permanent  loans 
treasury  bills 
bank  loans 
revenue; 

WAR 

RECONSTRUCTION 
CIVIL    EXPENDITURES 
DEBT    CHARGE 


for  the  period  less  the  es- 
timated normal  expenses, 
based  upon  the  expenses 
as  they  were  running  in 

1913- 

As  may  be  seen  by  ref- 
erence to  the  table  on 
page  31,  the  resources 
with  which  to  meet  the 
expenditures  of  the  war 
period  came  18.50  per 
cent,  from  taxation  and 
other  revenue  collections, 
65.17  per  cent,  from  bor- 
rowing at  home  and  about 
16.33  per  cent,  from  bor- 
rowing abroad.  Of  the 
loans  15.27  per  cent,  of 
the  amount  was  furnished 
by  the  Bank  of  France, 
28.77  P^r  cent,  came  from 
the  little  national  defense 
bills  and  other  tempo- 
rary loans,  3  5.93  percent, 
from  the  great  perma- 
nent loans,  chiefly  in  the 
form  of  perpetual  rentes, 
and  20  per  cent,  from 
borrowing  abroad.  The 
table  on  the  opposite 
page  and  the  charts  on 
this  and  the  next  page 


24 


BANKERS  TRUST  COMPANY 


EXPENDITURES  AUTHORIZED 
Annual  Averages,  1914-1921 


give  the  expenditure  for  each  of  the  war  and  post-war  years 
and  the  receipts  in  summary.  A  detailed  statement  of  re- 
ceipts from  all  sources  (1914  to  1921  inclusive)  may  be  found 
on  page  31;  an  analysis  of  expenditures,  on  page  22  and  of 
the  revenue  receipts,  on  page  186.  The  estimated  revenue 
receipts  for  the  general  budget  of  1922  are  given  on  page  34 
and  the  appropriations  on  page  35.  The  special  budget  appro- 
priations for  1922  are  given  on  page  36.  The  preliminary 
estimates  for  the  general  budget  of  1923  may  be  found  on 
pages  36  and  37. 


Chapter  IV 

Post- War  Financing 
19201921 

TN  1920  and  1921  France  began  an  earnest  effort  to  put  her 
-■-  finances  on  a  strong  basis.  Two  noteworthy  results  were 
achieved;  no  further  loans,  that  is  no  increased  loans,  were 
obtained  from  the  Bank  of  France, — in  fact  such  loans  were 
materially  reduced — while  on  the  other  hand  revenue  collec- 
tions increased  substantially.  Expenses  for  military  purposes 
while  large  in  amount  were  relatively  small  compared  to  the 
war  period  expenses,  being  only  about  17  per  cent,  of  the 
expense  budget  as  against  over  65  per  cent,  during  the  war 
period.  On  the  other  hand  the  reconstruction  expenses 
loomed  up  in  importance  calling  for  nearly  27  per  cent,  of  the 
estimated  expenses.  The  most  striking  feature  was  the  steady 
growth  in  the  debt  charge,  which  in  1921,  exclusive  of  interest 
upon  the  debts  to  the  United  States  and  the  United  Kingdom, 
amounted  to  30.75  per  cent,  of  the  estimated  total  expendi- 
tures for  the  year. 

Post' War  Borrowing 

In  1920  two  great  funding  loans  were  placed.  These 
produced,  all  told,  the  equivalent  of  ^8,497,cxx),ooo,  retiring 
$2,572,000,000  of  short  term  bonds  and  bills  and  $2,391,- 
000,000  of  rentes  and  bringing  $3,534,000,000  of  new  money 
into  the  treasury.  The  loans  of  1920  introduced  an  entirely 
new  feature  into  French  public  finance,  that  is  to  say  each  of 
these  loans  was  placed  at  par.  However,  the  first  loan  of  1920 
was  made  redeemable  at  a  premium  of  fifty  per  cent.,  the 

[25 


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FRENCH  PUBLIC  FINANCE 


27 


bonds  being  divided  into  series  to  be  drawn  semi-annually 
over  a  period  of  sixty  years.  The  second  issue,  which  by  the 
way  sold  even  better  than  the  first,  was  a  straight  six  per 
cent,  security  without  adventitious  aids  of  any  kind. 


FOREIGN    DEBT 

FLOATING   DEBT       

■i  FUNDED    DEBT 

IN  FRANCS    000  000  OMITTED 


i 


m 


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J914        14         IS        16        '17         IS         19        '20      13E1 


JULY      DEC. 


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240 


ZOO 


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40 


THE  GROWTH  OF  THE  DEBT,  1914-1921 


28 


BANKERS  TRUST  COMPANY 


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FRENCH  PUBLIC  FINANCE  [  2<) 

Taxation 

The  war  period  brought  about  some  radical  changes  in  the 
methods  of  taxation  in  use  in  France. 

Just  before  the  war,  there  was  put  upon  the  statute  books 
the  first  general  income  tax  law  ever  passed  by  parliament. 
This  happened  in  July  of  1914.  The  breaking  out  of  the  war 
before  the  machinery  for  the  operation  of  the  law  could  be 
properly  devised  and  set  in  motion  deferred  the  time  of  its 
effective  application.  It  was  not  until  the  post-war  period 
that  it  yielded  any  worth  while  return. 

Besides  this  general  income  tax,  there  are  in  use  not  less 
than  three  other  forms  of  taxing  incomes.  The  old  direct  taxes 
on  real  estate  have  been  converted  into  taxes  on  the  income 
from  real  estate.  The  old  taxes  on  doors  and  windows,  trades 
and  professions  have  been  succeeded  by  taxes  on  the  income 
from  industrial,  commercial  and  agricultural  profits  and  the 
incomes  from  salaries,  wages,  pensions,  annuities  and  pro- 
fessional activities.  The  old  tax  upon  transferable  securities 
has  been  made  a  straight  tax  upon  the  income  from  such 
securities.  The  actual  receipts  in  1920  and  192 1  from  these, 
various  forms  of  taxation  of  incomes  were  nearly  three  times! 
what  the  old  taxes  to  which  they  succeeded  yielded  before  the* 
war. 

The  war  profits  tax,  now  repealed,  yielded  relatively  large 
returns. 

Other  new  taxes  have  been  the  "special  tax  on  payments'* 
which  was  first  enforced  in  191 8  and  was  in  1920  superseded 
by  the  tax  on  "business  turn-over." 

These  were  the  principal  new  taxes  which  the  war  brought 
into  being.  For  the  rest  of  the  added  income  from  taxation 
recourse  was  had  to  increasing  the  rates  of  taxation  under 


30 


BANKERS  TRUST  COMPANY 


14-15 


15-16 


16-17 


17-18 


18-19 


19-26 


RECEIPTS  FROM  ALL  SOURCES 
Annual  Averages  1914-1921 


certain  of  the  old  forms  of  imposts  with  which  the  people 
were  familiar,  namely,  the  registration  and  stamp  taxes, 
customs  duties,  excise  and  consumption  taxes.  These  were 
supplemented  by  the  profits  from  the  state  monopolies,  the 
chief  of  which  are  tobacco  and  matches.  The  post  office, 
telephone  and  telegraph  are  also  state  monopoHes  but  are 
said  to  have  been  operated  at  a  loss. 

The  foregoing  facts  in  regard  to  the  revenues  and  loan 
receipts  for  the  war  and  post-war  periods  have  been  deduced 
from  the  table  on  the  opposite  page  and  from  the  analysis  of 
the  revenue  returns  for  each  year,  1914  to  1921,  inclusive, 
printed  on  page  186.  It  will  be  noted  that,  actually  and  pror 
portionately,  revenue  receipts  have  been  gaining  in  impor-L 
tance,  while  the  receipts  from  borrowing  have  diminished.    ' 


FRENCH  PUBLIC  FINANCE 


31 


RECEIPTS  FROM  ALL  SOURCES 
1914-1921 

Statistical  data  from  Ministry  of  Finance] 
(In  francs — 000,000  omitted) 


Rev- 

Loans 

enue 

b 
Banks 

Total 

Total 

Year 

a 
Taxes 

Treas- 

c d 
Perma- 

Total 

from 
Foreign 

Total 

Re- 
ceipts 

and 

of 

ury- 

nent 

from 

Loans 

from 

Rev- 

France 

Bills. 

Loans. 

Internal 

at  Par 

Loans 

enue 

and 
Algeria 

Etc. 

Etc. 

Loans 

of  Ex- 
change 

1914-    .    .    • 

4.196 

3.900 

1,190 

5,090 

510 

5,600 

9.796 

191S.    .    .    . 

4.130 

1. 175 

4.348 

11.845 

17,368 

1. 46 1 

18,829 

22,959 

1916.    .    .    . 

4.932 

2,450 

5.643 

10,074 

18,167 

S.472 

23,639 

28,571 

1917.    .    .    . 

6.186 

5. 060 

6.973 

10,206 

22,239 

11,960 

34.199 

40.385 

1918.    .    .    . 

6.791 

4.780 

3.660 

22,450 

30,890 

7,987 

38,877 

45.668 

1919.    .    .    . 

11,586 

8.470 

26,151 

4.898 

39,519 

S.990 

45.509 

57.095 

Total  War 

Period      . 

37,821 

25,835 

47,965 

59,473 

133,273 

33,380 

166,653 

204,474 

%  Loans 
%  Total 

15.27 

28.77 

35.93 

79.97 

20.03 

100.00 

Receipts  . 

18.50 

12.63 

23.45 

29.09 

65.17 

16.33 

8j^50 

100.00 

1920.    .    .    . 

i9':s2i 

76s 

3.498 

35.486 

39,749 

-510 

39.239 

59.060 

1921.    .    .    . 

21.543 

-2.000 

10,278 

9.133 

17,411 

2,693 

20,104 

41.647 

Total  Post 

War  Period 

41,364 

-1,235 

13,776 

44,619 

57,160 

2,183 

59,343 

100,707 

%  Loans      . 
%  Total 

21.14 

75.19 

96.33 

3.67 

100.00 

Receipts  . 

41.07 

13.69 

44^31 

56.76 

2.17 

58.93 

100.00 

Grand  Total 

1914-1921 

79,185 

24,600 

61,741 

4104,092 

190,433 

35,563 

225,996 

305,181 

%  Loans 
%  Total 

10.88 

27.32 

46.06 

84.26 

15-74 

100.00 

Receipts  . 

25.95 

8.06 

20.23 

34.11 

62.40 

11.65 

74.05 

100.00 

a  For  items,  see  table  page  186.  The  totals  are  somewhat  different,  those  in  this 
table  are  the  later. 

b  Includes  a  very  small  amount  relatively  from  Bank  of  Algeria. 

c  For  proceeds  of  permanent  loans  only  see  table ' '  Permanent  War  Loans"  on  page  18. 

d  Including  loans  of  Crddit  National,  State  Railways  and  funds  coming  from  sale 
of  National  Defence  Obligations  and  from  two  years  Treasury  Bonds. 


32]  BANKERS  TRUST  COMPANY 

The  ig22  Budget 

As  was  the  case  in  the  years  1920  and  1921,  the  budget  is 
divided  into  two  parts,  first,  the  general  budget;  second,  the 
special  budget  of  expenditures  recoverable  in  connection  with 
the  execution  of  the  peace  treaties.  The  general  budget  law 
for  1922  was  passed  by  both  the  chamber  and  the  senate  on 
December  31,  1921,  so  that  it  came  into  operation  for  the 
first  time  in  the  case  of  a  budget  for  many  years  with  the 
beginning  of  the  normal  financial  year  on  January  i,  1922, 
thus  making  it  unnecessary  to  ask  parliament  for  any 
"douziemes  provisoires"  or  monthly  votes  on  account.  In 
1921  the  budget  law  was  not  passed  until  May  ist  and  in 
1920  it  was  not  passed  until  August  ist,  therefore  involving 
votes  on  account  for  respectively  four  and  seven  months. 
The  special  budget  for  1922  was  adopted  on  the  30th  of 
March. 

General  Budget:  The  principles  which  it  was  aimed  to 
observe  in  connection  with  the  general  budget  for  1922  were 
(a)  respect  for  the  engagements  taken  with  regard  to  the 
terms  of  the  loans  and  their  convertibility  features;  (b)  that 
for  the  future  the  ordinary  expenditures  must  be  met  by 
revenue  and  not  by  loans;  (c)  that  there  should  be  no  new 
taxes  nor  increases  in  the  rates  of  outstanding  taxes.  From 
a  technical  point  of  view,  the  general  budget  for  1922  diflPers 
from  those  of  the  two  preceding  years  in  that  it  is  a  single 
budget;  that  is,  it  is  no  longer  divided  into  an  ordinary  and 
extraordinary  budget,  although  the  transformation  is  more 
apparent  than  real,  for  among  the  expenditures  there  are 
still  some  items  which  are  classed  as  ordinary  and  otherav 
which  are  classed  as  extraordinary,  while  the  same  is  true  ofl 
the  receipts. 


FRENCH  PUBLIC  FINANCE 


33 


The  general  budget  may  be  summarized  as  follows:  total 
appropriations,  24,688  million  francs;  estimated  total  receipts, 
24,702  million  francs.  The  estimated  receipts  include  an  item 
of  1,320  million  francs  to  be  obtained  from  loans.  The  follow- 
ing tables  show  the  estimated  appropriations  and  receipts 
compared  with  the  similar  estimates  for  the  previous  fiscal 
year.  The  appropriations  for  expenditures  are  shown  as  fol- 
lows in  comparison  with  those  for  1921: 


General  Budget  Expenditures 

1922 
(Million 
Francs) 

1921 
(Million 
Francs) 

Ordinary  Expenditures 

23,334 
1,354 

2';,26'; 

Extraordinary  Expenditures 

3,236 

Total 

24,688 

26,499 

The  services  to  which  these  expenditures  properly  belong 
may  be  tabulated  as  indicated  below: 


1922 

I92I 

1920 

Million 
Francs 

Per 
Cent. 

Million 
Francs 

Per 
Cent. 

Million 
Francs 

Per 
Cent. 

Public  Debt    .    .    . 
National  Defense  . 
Other  expenses  .    . 

12,647 
4,224 

7,817 

51.2 
17.1 
31.7 

11,682 
5,821 
8,996 

44 
22 

34 

11,833 

5,105 

10,243 

43.4 
18.7 
37.9 

24,688 

lOO.O 

26,499 

100 

27,181 

lOO.O 

It  may  be  seen  that  while  the  total  estimated  expendi- 
tures pertaining  to  national  defense  and  civil  services  decrease 
by  nearly  three  billion  the  fixed  charges  on  the  national  debt 
increase  by  nearly  one  billion  and  now  represent  more  than 
one-half  of  the  total  estimated  general  budget  expenditures. 


34] 


BANKERS  TRUST  COMPANY 


GENERAL  BUDGET  ESTIMATES  OF  REVENUE 
(In  francs — 000,000  omitted) 


1922 

I92I 

Budget 

Estimates 

Percent- 
age of 
Total 

Estimates 

Percent- 
age of 
Total 

A.   Ordinary  Receipts 
I.   Taxes  and  revenues: 

(a)    Income  Taxes 

2.389 
1x8 

3.481 
727 

3.04s 
34 

2.707 

2,686 

543 

13 

12.00 

0.80 
17.20 

3.70 
15.40 

0.20 
13.60 
13.40 

2.80 

O.IO 

1,866 
147 

3.010 
661 

3.136 
33 

2.344 

2,569 

433 

12 

10  60 

(b)  Other  direct  taxes 

(c)  Registration  and  Stamp     .... 

(d)  Tax  on  income  from  securities  .    . 

(e)  Tax  on  business  turn  over .       .    . 

(f)  Tax  on  Stock  Exchange  operations 

(g)  Customs 

0.80 
17.10 

3.70 
17.90 

0.20 
13.30 
14.60 

2.40 

0.05 

(i)     Tax  on  sugar  and  saccharine     .    . 
(j)    Luxury  Tax 

Total     .... 

15.743 

79.40 

14,211 

80.6s 

2.    Proceeds  from  Monopolies  and  from 
State  enterprises 
(a)    Tobacco 

1.644 
117 

41 
1,086 

22 

8.50 

0.60 

'  S.40 

1.370 
92 
20 

1,099 
14 

7.70 
0.60 

O.IO 
6.20 

(b)  Matches  and  automatic  lighters   . 

(c)  Powder  for  shooting 

(d)  Post,  telegraph  and  telephone  .    . 

(e)  Miscellaneous 

Total 

2,910 

14.70 

2,595 

14.70 

3.    Revenue  from  State  properties     .    .    . 

183 

0.90 

145 

0.80 

4.    Receipts  "d'ordre" 

798 

4.10 

507 

2.90 

5.    Miscellaneous  receipts 

177 

0.85 

160 

0.90 

6.    Receipts  receivable  from  Algeria  .    .    . 

II 

0.0s 

6 

0.05 

Total  of  ordinary  receipts      . 

19,8210 

100.00 

17.624 

100.00 

B.   Extraordinary  Receipts 
I.   War  profit  taxes  ... 

3.050 
500 

86.00 
14.00 

4,028 
1,200 

77.00 
23.00 

2.   Liquidation  of  war  stocks 

Total  of  extraordinary  receipts 

3.550 

100.00 

5.228 

100.00 

Total  Receipts  (other  than 
from  loans) 

23.382 

..    .. 

22,852 



a  Items  foot  19.832.     The  total  in  table  is  as  per  budget  law. 


FRENCH  PUBLIC  FINANCE 


35 


GENERAL  BUDGET  APPROPRIATIONS  1922 
(In  francs — 000,000  omitted) 


1922 

I92I 

Department 

Ordi- 
nary 
Ex- 
pendi- 
tures 

Ex- 
traor- 
dinary 

Ex- 
pendi- 
tures 

Total 

Per- 
cent- 
age of 
Total 

Ordi- 
nary 
Ex- 
pendi- 
tures 

Ex- 
traor- 
dinary 

Ex- 
pendi- 
tures 

Total 

Per- 
cent- 
age of 
Total 

Finances: 

a  Public  Debt    .    .    . 
Other  expenses  .    . 

12.647 
1,604 

0 

228 

12,647 
1.832 

51.2 

7-4 

11,248 
I.5S6 

200 
229 

11,448 
1,785 

43.5 
6. 

Total 

14.251 

228 

14.479 

58.6 

12,804 

429 

13,233 

49-5 

Justice 

Foreign  affairs    .    .    . 

Interior 

War 

Navy 

Public  Instruction 
and  Fine  Arts     .    . 

Commerce  and  indus- 
try     

Post.  Telephone  and 
Telegraph    .... 

Labor  

Colonies 

Agriculture 

Public  Works .    . 

Pensions      

Public  Health     .    .    . 

Liberated  Regions.    . 

169 

69 

183 

2,908 

767 

1,416 
19 

'it] 

222 
164 
1,326 
108 
231 

I 

85 

61 

518 

31 

13 

9 

7 

0 

15 

4 

30 

99 

66 

b  186 

170 
154 
244 
3.426 
798 

1.429 
28 

1,348 
161 
237 
168 

1,356 
207 
297 
186 

1:1 

I.O 

13.9 
3.2 

5.8 

0.1 

5.4 
0.7 
i.o 
0.7 

s.s 

0.8 
1.2 
0.8 

'it 

167 

3,135 

832 

1,295 

17 

1,438 
167 
236 
152 

2,469 
135 
203 

I 

162 

506 

1,327 

120 

13 

9 

ID 
0 

22 
5 

421 
14s 

66 

145 
231 
673 
4.462 
952 

1.308 

26 

258 
157 
2,890 
280 
269 

0.6 
0.9 
2.6 
16.9 
3.6 

4.9 

0.1 

5.5 
0.6 
1.0 
0.6 
10.9 
1.2 
I.I 

Total 

23,335 

1.353 

24,688 

lOO.O 

23.263 

3.236 

26,499 

100. 0 

a  Including  "dette  viagere,"  i.  e.  the  ordinary  pensions. 
b  Not  recoverable  from  Germany. 


Special  Budget:  The  special  budget  of  reimbursable  ex- 
penditure as  voted  in  its  final  form  provided  for  the  expen- 
diture of  10,222,652,000  francs.  Owing  to  the  uncertainty 
of  Germany's  payments  on  account  of  reparations,  the 
parliament  decided  to  leave  the  estimate  of  receipts  blank. 
Whatever  amount  is  not  obtained  from  reparation  or  similar 
receipts  will  necessarily  have  to  be  provided  for  by  borrowing, 
but  this  will  be  effected  by  means  of  interior  or  domestic  loans. 


36]  BANKERS  TRUST  COMPANY 

principally  through  the  medium  of  the  Credit  National,  the 
financial  organization,  established  to  facilitate  reparation 
settlements.  (See  page  90.)  The  items  of  expenditure  for 
which  appropriations  were  made  are  as  follows: 

SPECIAL  BUDGET  APPROPRIATIONS  1922 

In  francs 

Ministry  of  Finance 4,663,319,464 

, -.  .  ^        f  T    ^-      J  Judicial  Department 103,000 

Ministry  of  Justice:-j;[)^p^^^^^^^^fp^^i^^^^i^l3  ^20,000 

Ministry  of  War 56,000,000 

Ministry  of  Marine      5»ooo 

Ministry  of  Public    (  Education 109,878,000 

Instruction  and      <  Fine  Arts 25,340,000 

Fine  Arts:           (  Technical  Instruction 1,046,500 

Ministry  of  Labor i,739»900 

Ministry  of  Colonies 326,900 

Ministry  of  Agriculture 10,326,900 

^        (  Public  Works      767,874,900 

Ministry  of         >  post  and  Telegraph 12,455,000 

Public  Works:      ^  Ports,  merchant  marine  and  fisheries  4,560,000 

Ministry  of  Liberated  Regions 4,149,612,400 

Ministry  of  Pensions 401,750,854 

Ministry  of  Health  and  Public  Assistance i7,594,ooo 

10,222,652,818 

The  ig23  General  Budget 

The  proposed  budget  for  1923  contemplates  a  reduction 
in  expenditure  of  1,508  million  francs  as  compared  with  the 
estimates  in  the  budget  for  the  year  1922.  The  budget 
figures  for  the  two  years  compare  as  follows: 

Budget    Proposed  Budget 
1922  1923 

(in  1,000  francs) 
Revenue  from  normal  sources      .    .     19,832,100      18,060,000 

Exceptional  resources 3,550,ooo        1,225,000 

Funds  to  be  obtained  from  loans .   .       1,320,000        3,900,000 

Total  estimated  receipts 24,702,100      23,185,000 

Total  estimated  expenditures  .    .    .     24,688,000      23,180,000 


FRENCH  PUBLIC  FINANCE  [  37 

It  is  suggested  that  3,900  million  francs  be  obtained  by 
means  of  loans  in  1923,  because  that  amount  approximates 
the  interest  on  the  sums  advanced  by  France  down  to  Janu- 
ary I,  1922  on  Germany's  account  for  the  payment  of  repara- 
tions to  French  citizens. 

The  amount  so  paid  out  down  to  June,  1922  by  the  French 
government  on  Germany's  account  for  reconstruction  and 
other  purposes  coming  under  the  chapter  of  redeemable 
expenditures  exceeded  80  billion  francs. 

The  following  table  indicates  the  more  important  increases 
and  reductions  of  expenditure  contemplated  in  the  budget 

for  1923: 

Increase  or  Decrease 
Compared  to  1922 
Francs 

Posts  and  Telegraphs —1,221,000,000 

Public  debt —    975,000,000 

Discontinuance  of  indemnity  for  high  cost  of 

living —     154,000,000 

Government  expenses  in  Syria —      32,000,000 

Guaranty  to  railroads •—      25,000,000 

Army  of  occupation  in  the  East +    234,000,000 

Ministry  of  Public  Instruction -|-    139,000,000 

Ministry  of  Marine -j-    323,000,000 

Ministry  of  Finance -h    128,000,000 

Ministry  of  Hygiene -f-      85,000,000 

The  very  large  decrease  of  1,221  million  francs  in  the 
postal  service  does  not  mean  that  this  amount  of  expenditure 
would  be  done  away  with,  but  an  entirely  separate  budget 
has  been  made  for  the  postal  and  telegraph  services,  which 
will  be  annexed  to  the  general  budget. 


38] 


PURCHASING  POWER  MEDIA  AND  THEIR  USE 

Combining  data  for  the  Bank  of  France  and  Six  Great  Credit 

Companies.  See  Tables,  pages  40  and  42. 


Chapter  V 

The  Credit  Structure 
1914-1921 

^  I  ^HE  credit  fund  by  which  the  trade  and  commerce  of  a 
-*-  country  is  largely  financed  may  be  approximately 
measured  by  the  sum  of  the  circulating  media — gold  and 
silver,  bank  notes  and  bank  deposits.  Normally  the  foun- 
dation of  this  great  credit  structure  is  the  specie  reserve  held 
by  the  central  bank  or  banks  and  in  the  national  treasury. 

The  Purchasing  Power  Media  of  France 

There  is  probably  no  country  in  the  world  in  which  the 
loaning  facilities  of  the  banks  are  availed  of  by  so  large  a 
percentage  of  the  people  as  in  France. 

The  French  banks  will  discount  little  pieces  of  commercial 
paper  such  as  no  English  or  American  bank  would  consider 
for  a  moment.  Any  small  shopkeeper  may  borrow  as  trifling 
an  amount  as  five  francs  from  the  great  Bank  of  France. 
Instead  of  a  portfolio,  or  bill-book,  many  "strong  boxes'  must 
be  required  to  hold  the  bills,  large  and  small,  discounted  by 
the  banks  of  France.  On  the  other  hand,  payments  in 
settlement  of  accounts  are  made  in  France  in  specie  or  bank- 
notes to  a  greater  extent  than  in  England  or  in  America  and 
hence  bank  deposits  are  much  less  per  capita  than  with  us, 
while  the  per  capita  amount  of  money  in  circulation  is  much 
higher. 

The  commercial  banking  situation  in  France  is  largely 
dominated  by  the  Bank  of  France  and  six  great  credit  com- 
panies, which  have  branches  in  nearly  every  important  town 

[39 


40 


BANKERS  TRUST  COMPANY 


in  France.  In  addition  to  the  very  complete  statements  pub- 
lished by  the  Bank  of  France  we  have  been  able  to  obtain 
comparative  statements  from  the  beginning  of  the  war  for 
these  six  great  commercial  banks,  namely,  the  Societe 
Generale,  the  Credit  Lyonnais,  the  Comptoir  National 
d'Escompte  de  Paris,  the  Credit  Industriel  et  Commercial,  the 
Credit  Commercial  de  France  and  the  Banque  Nationale  de 
Credit,  which  we  have  arranged  in  two  tables,  one  giving  the 
purchasing  power  or  credit  media,  that  is  to  say  the  deposits 
of  the  banks  in  question,  plus  the  deposits  and  note  circulation 
of  the  Bank  of  France;  and  the  other,  giving  the  loans  and 
investments,  analyzed  as  to  advances  made  to  the  government 
and  those  made  to  the  general  public.  We  will  first  examine 
the  table  giving  data  in  regard  to  the  purchasing  power  media. 

PURCHASING  POWER  MEDIA  OF  FRANCE 

Combining  Data  for  Bank  of  France  and 

Six  Great  Credit  Companies 

(In  francs — 000,000  omitted) 


Date 

Cur- 
rency 

Deposits 

Total 
Credit  Media 

Bank  of 
France 
Notes 

Bank 

of 
France 

Six 

Big 

Banks 

d  Total 

Total 

Percent. 

June  30, 

1914 

.  une30,  1914 

Dec.  31,  1914 

1915 

1916 

1917 
1918 
1919 
1920 
192 1 

aio,23i 
10,162 

13,309 
16,679 
22,789 
31,055 
37,660 

37,901 
36,487 

1,232 
2,912 
2,287 
2,275 
3,114 
2,426 

3,364 
3,575 
2,743 

65,826 

C4,i84 

4,305 

5,054 

7,385 

8,456 

15,946 

17,709 

17,625 

7,058 

7,096 

6,592 

7,329 

10,499 

10,882 

19,310 

21,284 

20,368 

17,289 
17,258 
19,901 
24,008 
33,288 
41,937 
56,970 
59,185 
56,855 

100.00 
99.82 

115-45 
138.86 
192.48 
242.58 
329.51 
342.32 
328.85 

a  Includes  4,180  million  specie  then 
b  Four  banks. 
c  Five  banks. 

d  To  the  extent  that  the  six  banks 
excessive. 


in  circulation  and  6,051  million  notes, 
deposit  with  the  Bank  of  France  this  total  is 


FRENCH  PUBLIC  FINANCE  [  4I 

The  Currency 

On  June  30,  1914,  the  money  of  France,  apart  from  the 
subsidiary  coinage,  consisted  of  an  estimated  amount  of 
4,180  million  francs  of  gold  and  full  value  silver  in  general 
circulation  and  of  6,051  million  francs  in  Bank  of  France 
notes;  in  all  10,231  million  francs.  Against  the  notes  the 
bank  had  a  specie  reserve  of  4,697  million  francs  or  77.62 
per  cent. 

The  first  effect  of  the  war  was  to  drive  under  cover  the 
gold  and  silver  in  circulation,  so  that,  after  June  30,  I9I4> 
specie  rapidly  disappeared  from  use  as  money.  However, 
quite  a  lot  of  this  real  money  reappeared  later  in  the  reserves 
of  the  Bank  of  France.  How  this  happened  is  told  on 
page  43,  beginning  with  the  last  paragraph. 

Not  only  did  full  value  specie  go  out  of  circulation  in 
1914,  but  later  the  subsidiary  coins  faded  from  view,  to  be 
replaced  by  various  make-shift  forms  of  small  notes. 

The  place  of  the  specie  driven  under  cover  by  hoarding 
was  taken  by  Bank  of  France  notes.  The  increase  in  the 
amount  of  notes  in  circulation  at  the  end  of  the  year  1914 
simply  offset  the  specie  which  had  disappeared.  The  circula- 
tion in  1915  increased  about  30  per  cent,  to  13,300  million 
francs;  in  1916  a  further  25  per  cent,  was  issued;  in  1917 
the  increase  was  about  36  per  cent,  to  22,789  million;  in  191 8 
the  increase  was  again  about  36  per  cent,  to  over  31,055 
million.  Thus  at  the  close  of  the  war,  the  money  in  circula- 
tion was  almost  exactly  three  times  what  it  was  when  the 
war  began.  The  next  year,  191 9,  saw  a  further  increase  of 
about  21  per  cent,  to  37,660  million  francs.  After  that  the 
outstanding  notes  remained  fixed  at  about  this  amount, 
increasing  a  little  in   1920  and  then  decreasing  to  36,487 


42] 


BANKERS  TRUST  COMPANY 


HOW  THE  PURCHASING  POWER  MEDIA  WERE  USED 

Combining  Data  for  Bank  of  France  and 

Six  Great  Credit  Companies 

(In  francs — 000,000  omitted) 


(2) 

(3) 

(I) 

Advances  to 

Advances  to 

Total 

Government 

Public 

Date 

Loans  and 
Invest- 
ments 

Bank  of  France 

All  Seven  Banks 

Amount 

%  Total 

Amount 

%  Total 

June 

30,  1914  .    . 

9,712 

9,712 

100.00 

Dec. 

31,  1914  .    • 

12,554 

3,900 

31.07 

8,654 

68.93 

1915  .    . 

13,890 

5,831 

41.97 

8,059 

58.03 

1916  .    . 

17,777 

9,400 

52.87 

8,377 

47.13 

1917  .    . 

26,593 

15,925 

59.88 

10,668 

40.12 

1918  .    . 

33,798 

21,531 

63.70 

12,267 

36.30 

1919  •    . 

49,151 

29,810 

60.65 

19,341 

39-35 

1920  .    . 

53.742 

30,780 

57.27 

22,962 

42-73 

1921   .    . 

49,677 

28,742 

57-85 

20,935 

42.15 

(i)  The  difference  between  the  total  of  loans  and  investments  as  shown  in  column 
one  above  and  the  total  credit  media  as  shown  in  the  preceding  table  is  almost 
entirely  accounted  for  by  the  large  specie  reserve  of  the  Bank  of  France  which 
stood  as  follows  in  millions  of  francs,  on  the  dates  given:  On  June  30,  1914.  4.697; 
on  December  31,  1914,  4,532;  on  December  31,  191S.  5.367;  on  December  31,  1916, 
S,37o;  on  December  31,  1917,  S.602;  on  December  31,  1918,  5,804;  on  December  31, 
1919.  S.844;  on  December  31,  1920,  5.766;  December  31.  1921.  5.804. 

(2)  Includes  treasury  bills  discounted  to  provide  for  advances  to  foreign  governments, 
viz.:  630  million  in  1915;  1,800  million  in  1916;  3.225  million  in  1917;  3.531  millon 
in  1918;  3,760  million  in  1919;  3,980  million  in  1920  and  4.142  million  in  1921. 

(3)  Includes  a  certain  amount  of  treasury  bills  held  by  the  six  credit  companies.  The 
exact  amount  is  not  given  in  their  statements. 


million  on  December  31,  1921.  The  notes  of  the  bank  in 
circulation  at  the  end  of  the  year  were  over  3^^  times  the 
amount  in  circulation  on  December  31,  1914. 

Bank  Deposits 

Bank  deposits  did  not  have  any  marked  increase  in 
volume  until  after  the  close  of  the  war.  In  fact  the  figures 
show  that  at  first  the  tendency  was  for  the  deposits  to  de- 
crease.  They  were  actually  less  at  the  close  of  191 5  than  on 


FRENCH  PUBLIC  FINANCE  I  43 

June  30,  1914.  In  1916  there  was  a  slight  increase  but  in  1917 
there  was  an  increase  of  about  49  per  cent,  over  June  30,  1914, 
to  10,499  million  francs,  at  about  which  level  they  remained 
until  1919  when  they  grew  rapidly,  reaching  19,310  million 
francs  at  the  end  of  that  year.  There  was  a  moderate  further 
increase  in  1920  and  a  recession  of  about  1,000  million  francs 
during  the  year  1921. 

Total  Purchasing  Power  Media 

At  its  maximum,  about  the  close  of  1920,  the  money  in 
circulation  v/as  3.7  times  what  it  was  when  the  war  began. 
The  deposits  increased  about  three  times.  This  status  had  not 
materially  changed  at  the  end  of  1921. 

How  the  Purchasing  Power  Media  Were  Used 

During  and  since  the  war  the  government  has  made  heavy 
calls  upon  the  credit  facilities  of  the  banks,  as  an  inspection 
of  the  table  on  page  42  will  make  clear.  It  will  be  noted  that 
whereas  in  June,  1914,  the  government  was  not  borrowing 
from  the  Bank  of  France,  by  the  end  of  year  over  3 1  per  cent, 
of  the  total  loans  and  investments  was  for  government  ac- 
count. This  percentage  steadily  increased  until  on  December 
31,  191 8,  such  advances  absorbed  63.67  per  cent,  of  the  loan- 
able funds  of  the  banks. 

In  the  second  half  of  1914  the  Bank  of  France  "saved 
the  day"  for  the  other  banks  by  taking  off  of  their  hands 
their  frozen  credits  in  the  form  of  bills  and  accounts  receivable 
which  could  not  be  collected  because  of  special  laws  which 
were  passed  by  parliament  giving  debtors  the  right  to  defer 
for  longer  or  shorter  periods  the  payment  of  their  obligations. 
The  bills  affected  by  the  moratoria,  the  term  by  which  these 


44  ]  BANKERS  TRUST  COMPANY 

arrangements  were  known,  are  estimated  to  have  been  nearly 
two  billion  francs.  During  the  same  period  the  bank  ad- 
vanced to  the  government  3,900  million  francs.  This  feat  of 
aiding  both  the  government  and  business  was  accomplished  by 
an  increased  issue  of  notes  for  4,100  million  francs  and  by  an 
increase  in  deposits  of  1,700  million  francs  (see  table,  page  40). 
Whether  these  deposits  came  from  the  banks  which  were 
aided  or  whether  they  came  from  the  general  public  who 
carried  their  funds  to  the  bank  as  the  safest  place  of  deposit 
at  such  a  critical  time,  we  have  no  means  of  knowing. 

An  inspection  of  the  column  headed  "advances  to  the 
public"  shows  that  there  must  have  been  a  marked  falling 
off  in  general  business  in  the  latter  part  of  1914  and  in  191 5 
and  1916.  It  was  not  until  1917  that  the  market  required, 
or  at  any  rate  was  allowed  to  have,  accommodations  as  large 
as  those  which  were  being  granted  in  June,  1914. 

It  was  really  not  until  after  the  signing  of  the  peace 
treaty  in  June,  19 19,  that  the  bank  returns  showed  an  im- 
portant increase  in  the  credits  granted  to  business;  then  they 
reached  a  new  level  which  they  have  since  retained. 

The  Bank  of  France  today  has  a  specie  reserve  of  about 
15K  per  cent,  against  its  notes  and  14.38  per  cent,  against  its 
notes  and  deposits  combined.  This  reserve  is  very  mobile  be- 
cause it  is  not  ear-marked  for  notes  or  for  deposits  but  is  a  free 
asset  to  be  used  as  the  trained  judgment  of  the  management 
of  the  bank  may  deem  wise. 

The  story  of  how  the  bank  succeeded  in  maintaining  this 
reserve  is  an  interesting  and  impressive  commentary  on 
French  thrift  and  the  patriotism  of  the  French  people — 
of  the  workers  and  savers  of  France.  In  the  early  days  of 
the  war  the  bank  found  that  gold  was  needed  to  establish 
credits  in  London  and  to  some  extent  in  New  York,  to  part 


FRENCH  PUBLIC  FINANCE  [  45 

with  which  would  seriously  reduce  her  reserves.  Therefore 
an  appeal  was  made  to  the  people  through  the  public  press 
and  other  sources,  the  banks,  public  officials,  notaries 
and  the  like,  to  bring  hoarded  gold  to  the  nearest  branch 
of  the  bank.  For  this  gold  the  owner  received  bank  notes 
and  a  certificate  which  recited  the  fact  that  he  had  yielded 
up  his  gold  for  the  country's  good.  From  the  time  this 
plan  was  inaugurated,  until  the  need  no  longer  existed, 
there  was  a  steady  stream  of  gold  pouring  into  the  vaults  of 
the  bank,  which  equalled  or  exceeded  all  drafts  upon  the 
gold  reserves.  The  total  exceeded  two  and  a  half  billion 
francs.  Thus  French  thrift  vied  with  French  courage  in 
fighting  the  enemy. 

Foreign  Commerce 

Foreign  trade  figures  record  the  same  general  course  of 
economic  aflPairs  as  do  the  bank  statistics,  namely,  first 
depression,  then  a  rather  gradual  advance  during  the  war 
period  and  then  a  sudden  jump  when  the  war  was  over  and 
a  stabilization  of  volume  for  some  months  on  the  new  level, 
followed  by  a  reaction  in  1921.  However,  there  has  been  a 
very  interesting  change  since  the  war  in  the  character  of  the 
foreign  trade.  During  the  war  years  and  until  the  close  of 
1920  the  value  of  the  imports  greatly  exceeded  that  of  the 
exports,  but  during  1921  the  incoming  and  outgoing  trade 
nearly  balanced.  In  fact  there  were  five  months  when 
exports  exceeded  imports.  There  was  a  large  increase  in  im- 
ports of  raw  materials  in  December,  1921.  This  was  taken  as 
an  indication  of  confidence  on  the  part  of  the  business  com- 
munity in  improving  industrial  conditions.  In  the  following 
table  the  figures  are  given  for  each  year  as  officially  reported, 
and  are  also  adjusted  for  price  inflation. 


46] 


BANKERS  TRUST  COMPANY 


FOREIGN  COMMERCE 

cSpecial  Trade  1910-1921.  Actual  figures  and  also  reduced 

to  the  19 1 3  basis  of  prices 

(In  francs — 000,000  omitted) 


Merchandise 

Specie/ 

Excess  of 

For- 
eign 
Bor- 
rowing 
Par  of 
Ex: 
change 

Imports 

Exports 

Excess 
Imports 

Excess 
Imports 

All  Imports 

Year 

Actual 

d 

Basis 

1913 

Prices 

Actual 

d 

Basis 
1913 
Prices 

Actual 

d 
Basis 
1913 
Prices 

Ac- 
tual 

d 

Basis 
1913 
Prices 

Actual 

d 

Basis 
1913 
Prices 

1910  ,    - 

7.173 

8.066 

8,231 

8.421 

6,402 

11.036 

20,640 

27.554 

22,306 

35,799 

49.905 

23.548 

8.421 

6,339 

8,055 

11.037 

10.517 

6,580 

10,028 

9,785 

6,596 

6,234 

6.077 

6.713 

6.880 

4.869 

3.937 

6.214 

6,013 

4.722 

11,879 

26,89s 

21,553 

6,880 
4,821 
2.874 
3.323 
2.295 
1,393 
3.328 
5,273 
6,037 

939 

1,989 

1.518 

1,541 

1. 533 

7.099 

14,426 

21,541 

17,584 

23.920 

23.010 

1. 995 



1. 541 
1,518 
5.182 
7,715 
8,222 
5,187 
6,700 
4.512 
559 

16 

177 
206 

544 
749 
6-24 
128 
144 
55 
c 
c 
c 

544 
742 

■"69 
55 
16 

c 
c 

955 

2,166 

1,724 

2,085 

2,282 

7.075 

14.554 

21,685 

17.639 

23,920 

23.010 

1.995 

1911 

1912 

1913 
1914 
191S 
1916 
1917 
1918 
1919 
1920 

«I92I 

2,085 

2,259 

5.164 
7.783 
8,278 
5. 203 
6.700 
4.512 
559 

2,807 

2.801 

15.152 

6.402 

c 

a  Special  Trade,  i.e.,  imports  for  domestic  consumption  and  exports  of  domestic 
products. 

b  Excess  of  exports. 

c  Data  not  available. 

d  The  "actual"  figures  of  foreign  trade  divided  by  the  wholesale  price  index  number 
for  each  year  expressed  as  a  percentage  of  1913  prices,  as  compiled  by  the  General 
Statistical  Bureau  of  France. 

e  The  French  Administration  of  the  Customs  first  makes  up  the  statistics  of  foreign 
trade  by  weights  and  then  usually  adjusts  values  for  the  current  year  at  prices  prevailing 
in  the  previous  year.  Later  the  figures  are  readjusted  to  the  prices  of  the  year  to 
which  the  returns  apply.  However,  on  account  of  the  unusually  high  prices  of  1920 
the  preliminary  foreign  trade  returns  for  192 1  were  reported  on  the  basis  of  1919  prices. 
Therefore  in  making  up  our  figures  for  columns  "  Basis  of  1913  Prices"  we  have  divided 
the  1921  official  figures  by  the  price  index  number  for  1919. 

/  Does  not  include  exports  of  gold  by  the  Bank  of  France. 


Prior  to  the  war  the  values  as  well  as  the  volume  of  the 
imports  usually  exceeded  those  of  the  exports.  This  was  be- 
cause France  had  large  investments  abroad,  the  interest,  divi- 
dends and  profits  from  which  came  to  her  in  foreign  goods. 
France  also  was  increasing  from  year  to  year  her  foreign 
investments. 


FRENCH  PUBLIC  FINANCE 


47 


E:XRCDR.-rS 


FOREIGN  COMMERCE— SPECIAL  TRADE  1910-1921 

Figures  1914  to  1921  inclusive  adjusted  to  Basis  of 

19 1 3  WhoLsale  Prices.     See  table  opposite. 


u 
u 
z 
< 

k 

0  0 
Id  J 

L  0 
Ez 
Ou 
0 

J 
< 

U 

y 

D. 

(I) 


90Nvaj  JO  sNon-iig 


10 

o: 

0 

a 
I 


^       K)        <M        r-*        O 


48 


FRENCH  PUBLIC  FINANCE 


49 


During  the  war  the  excess  of  imports  became  very- 
pronounced.  France  was  then  importing  many  necessities 
of  life  such  as  meat,  grain,  and  clothing  which  normally 
she  would  have  produced  and  she  was  also  a  large  importer 
of  munitions  of  war  in  the  shape  of  raw  materials  as  well  as 
of  manufactured  goods,  while  simultaneously  the  volume  of 
her  exports  necessarily  was  greatly  curtailed. 

To  pay  for  such  purchases  she  borrowed  heavily  in 
English,  American  and  other  markets  and  also  was  a  heavy 
seller  of  her  holdings  of  foreign  securities. 

The  following  table  giving  the  weights  of  imported  and 
exported  goods  from  1910  to  1921  shows  the  shrinkage  of  ex- 
ports and  increase  of  imports  during  the  war.  It  also  brings 
out  the  fact  that  the  volume  of  French  exports  is  always  less 
than  the  volume  of  her  imports  This  is  because  France  im- 
ports largely  foods  and  raw  materials,  while  her  exports  are 
chiefly  of  luxuries. 


FOREIGN  COMMERCE 

Special  Trade  19 10- 1 921 

(In  metric  tons — 00,000  omitted) 


Year 

Imports 

Exports 

Year 

Imports 

Exports 

1910 

35,7 

15,5 

1916 

40,1 

3,7 

1911 

40,4 

16,9 

1917 

34,8 

3.0 

1912 

39,7 

20,3 

1918 

29,3 

3,7 

1913 

44,2 

22,0 

1919 

38.4 

5,5 

1914 

33,4 

12,6 

1920 

50,5 

12,8 

1915 

33.0 

4,1 

1921 

37,9 

16,0 

The  course  of  French  commerce  since  1868  and  the  fact 
that  manufactured  goods  dominate  the  exports  while  raw 
materials  dominate  the  imports  is  well  visualized  by  the 
charts  on  pages  48  and  50: 


0 

z 
< 

u 
u. 

0 

u 
u 

ii] 


(T 
uii] 


0 
U 

J 
< 

u 
til 
&. 
m 


^  10    M    —    o 


50  I 


FRENCH  PUBLIC  FINANCE 


SI 


In  concluding  this  brief  review  of  the  foreign  trade  of 
France  we  print  a  chart  showing  at  intervals  from  1868  to 
191 3,  inclusive,  the  nations  with  which  France  had  the  largest 
commerce  and  the  relative  importance  of  their  trade. 


1666  1673  1863  1693  1903 

FOREIGN  COMMERCE 
Interchanged  trade  500  million  francs  up 


1913 


52 


BANKERS  TRUST  COMPANY 


The  reader  will  note  the  dominating  position  of  trade  with 
England,  and  the  importance  of  Belgian  trade  and  also  of 
German  trade.  The  trade  with  her  own  colonies  was  and  is 
of  growing  value  to  France.  While  trade  with  the  United 
States  was  steadily  becoming  greater  before  the  war  it  had  a 
tremendous  growth  during  the  war  years,  as  is  especially 
shown  by  the  next  chart  prepared  from  the  foreign  commerce 
reports  of  the  United  States  government. 

15 


□ 


CXPCHiTATIONS 
itlPORTATION^ 


DOOQU 


13 
10^ 


1 
3^ 


I  I  I  I  i~i  I  ri-i  I  I 


1010     lOII 


1012     1013    1914    1015     r9l6     (917    JOIO     1919     1020    I02l 
YCAR    ENDING    JUNS  30Vf 


UNITED  STATES  COMMERCE  WITH  FRANCE 
Exports  from  and  Imports  into  United  States 


FRENCH  PUBLIC  FINANCE  [  53 

The  Foreign  Exchanges  During 
the  War  and  Since 

For  years  prior  to  the  war  London  had  been  the  clearing 
house  for  mercantile  and  financing  transactions  throughout 
the  world. 

It  was  largely  in  order  to  maintain  this  position  that  in 
September  191 5,  important  measures  were  taken  to  stabilize 
English-French-American  exchanges. 

Unsettled  political  conditions  in  Europe  subsequent  to  the 
news  of  Austria's  peremptory  ultimatum  to  Serbia  on  July  23, 
1914,  followed  by  the  startling  news  on  the  28th  that  Austria- 
Hungary  had  declared  war  on  Serbia,  led  to  tight  money  mar- 
kets throughout  the  world  and  to  weak  stock  market  condi- 
tions. Foreign  bourses  were  in  a  state  of  panic.  London  and 
New  York  were  the  only  important  open  markets.  They  were 
flooded  with  international  securities.  Great  quantities  of 
American  securities  thrown  upon  the  New  York  market 
caused  a  rise  in  sterling  exchange  to  ^4.94  prior  to  August,  and 
to  a  demand  for  large  gold  exports.  The  credit  paralysis  oc- 
curing  in  London  and  on  the  continent  following  the  general 
declaration  of  war  between  the  ist  and  4th  of  August,  1914, 
threw  an  added  strain  on  the  New  York  market,  and,  as  they 
had  no  available  credits  abroad,  American  foreign  exchange 
houses  were  unable  to  draw.  At  the  same  time  there  was  a 
very  active  demand  by  American  tourists  for  funds  to  re- 
place those  which  had  been  tied  up.  The  purchases  of 
people  making  such  remittances  to  their  relatives  and 
friends  led  to  small  transactions  as  high  as  $7  to  the  pound 
and  to  23.5  cents  to  the  franc  for  cable  transfers  as  against 
parities  of  $4,866  and  19.3  cents,  respectively.  Practically 
for  the  time  being  there  was  no  exchange  market. 


54  j  BANKERS  TRUST  COMPANY 

All  the  banking  centers  in  the  world  were  endeavoring  to 
obtain  sterling  exchange  and  seeking  to  convert  their  credits 
into  sterling.  The  only  place  in  the  world  where  moratoria 
had  not  been  declared  was  in  the  United  States;  consequently 
other  countries  were  trying  to  use  their  credits  in  the  United 
States  to  pay  London.  On  account  of  the  moratoria  New 
York  could  not  collect  from  her  creditors  but  was  called  upon 
to  pay  her  own  liabilities.  American  bankers,  realizing  that 
the  credit  standing  of  the  country  depended  upon  its  ability 
to  cope  successfully  with  the  situation,  organized  a  bankers 
committee  and  a  gold  fund  of  ^108,929,000  was  mobilized 
in  New  York  in  September,  1914,  to  be  used  in  remedying 
the  exchange  situation,  ^45,000,000  of  this  sum  was  sub- 
scribed by  New  York  bankers  and  $63,929,000  by  banks  and 
trust  companies  elsewhere  throughout  the  United  States. 
Another  gold  pool  was  formed  in  September  by  New  York 
banks,  to  provide  gold  for  shipment  to  London  to  pay  the 
indebtedness  of  New  York  City  maturing  there  before  the 
close  of  the  year.  It  was  found  necessary  to  call  for  only 
about  one-quarter  of  the  subscriptions  to  the  first  pool  and 
for  about  one-third  of  those  to  the  second.  The  mere  exist- 
ence of  the  pools  served  the  purpose  of  re-assuring  the 
markets.  During  October  there  was  an  appreciable  improve- 
ment of  the  exchange  situation  and  by  the  end  of  December, 
1914,  exchange  became  normal  and  then,  as  the  demands  of 
the  warring  countries  for  all  sorts  of  supplies  from  the  United 
States  became  insistent,  the  exchange  turned  in  favor  of 
New  York,  and  by  July,  191 5,  had  reached  $4.77  for  sterling 
and  iyy2  cents  for  the  franc,  the  lowest  points  ever  known 
up  to  that  time. 

American  current  indebtedness  abroad  had  then  been 
largely  liquidated  and  thousands  of  American  securities  from 


FRENCH  PUBLIC  FINANCE  [  55 

both  English,  French  and  other  overseas  markets  sold  back 
to  New  York. 

In  August,  19 1 5,  the  Paris  correspondent  of  The  Economist 
states  that  "the  question  of  the  New  York  and  London 
exchanges  continues  to  claim  first  place.  The  causes  of  the 
present  unsatisfactory  conditions  are  clearing  up.  The  heavy 
remittances  which  France  has  to  make  to  England  and 
through  London  to  the  United  States  on  account  of  pur- 
chases of  all  kinds  are  clearly  the  cause  of  these  conditions." 

Notwithstanding  the  efforts  to  meet  the  heavy  payments 
due  to  America  for  munitions  of  war  by  sales  of  securities 
and  of  treasury  bills  in  New  York,  as  well  as  by  considerable 
remittances  of  gold,  the  value  of  the  pound  and  of  the  franc 
in  that  market  continued  to  fall,  reaching  on  September  first 
the  low  levels  of  ^4.50  and  16^  cents,  respectively. 

It  was  then  that  the  English  government  arranged  with 
their  American  bankers,  Messrs.  J.  P.  Morgan  &  Co.,  to 
"peg,"  or  stabilize,  the  New  York-London  exchanges  by- 
standing  ready  at  all  times  to  furnish,  at  practically  a  fixed 
rate,  bills  required  to  settle  for  purchases  made  in  the 
American  markets.  Automatically  this  arrangement  had  the 
effect  of  stabilizing  Canadian-London  exchanges  and,  as  a 
result  of  the  close  working  arrangements  existing  between  the 
Bank  of  France  and  the  Bank  of  England,  the  Paris-New 
York  exchanges  and  the  Paris-London  exchanges  were  like- 
wise brought  into  line. 

There  was  nothing  mysterious  about  the  methods  of 
carrying  out  these  arrangements,  although  for  some  months 
the  market  was  not  cognizant  of  the  fact  that  they  had 
been  made. 

Because  of  the  falling  off  in  foreign  exports  to  America 
there  were  not  sufficient  commercial  credits   available  to 


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56 


FRENCH  PUBLIC  FINANCE  [  57 

pay  for  the  great  quantities  of  goods  being  purchased  in 
our  country  and  as  the  gold  available  for  remittance  had 
about  been  exhausted,  it  became  necessary  to  create  credits 
by  borrowing  in  the  New  York  market. 

It  was  to  this  end  that  in  October,  191 5,  France  and 
England  joined  their  credit  to  place  in  the  New  York  market 
an  issue  of  ^500,000,000  5  per  cent,  bonds,  the  Anglo-French 
5s  which  have  since  matured  and  been  paid.  This  was  the 
predecessor  of  many  loans,  none  of  them  so  large,  placed  in 
New  York  by  both  France  and  England  during  the  war. 
fcAnotheE. way  in  which  credits  were  created  in  New  York 
was  by  the  sale  in  that  market  of  French  and  English  treasury 
bills  and  by  arranging  commercial  credits  of  a  special 
character. 

In  a  statement  made  in  September,  1916,  by  M.  Ribot, 
the  French  minister  of  finance,  it  was  shown  that  up  to 
July  31,  1916,  1,476  million  francs  had  been  borrowed  in 
America  and  2,315  million  in  England. 

Stated  very  simply,  [France  was  paying  her  way  in  New 
York  by  direct  borrowing  or  by  borrowing  through  England 
while,  in  like  manner,  England  was  paying  for  goods  pur- 
chased in  America  by  the  proceeds  of  loans  made  in  Ameri- 
can markets. 

This  is  all  there  is  to  stabilization  of  the  exchanges.  The 
French  and  English  governments  were  doing  on  a  great 
scale  what  merchants,  railroad  companies  and  other  cor- 
porations are  constantly  doing — borrowing  from  or  through 
their  bankers,  then  placing  the  proceeds  of  the  loans  to  their 
credit  with  their  bankers  and  paying  for  goods  purchased 
by  checking  on  these  deposits. 

Of  course  this  is  a  big,  broad  generalization.  There  were 
many  intricate  details  of  banking  involved  in  the  handling 


58] 


BANKERS  TRUST  COMPANY 


PARIS  EXCHANGES  ON  VARIOUS  MARKETS 
(In  percentages  of  the  average  quotation  in  1913) 


New 
York 

London 

Holland 

Sweden 

Spain 

Switzer- 
land 

I9I4 

January  .... 

100. 0 

100. 0 

100.5 

..... 

102.2 

100. 0 

April 

99.6 

99-6 

100. 0 

100. 0 

lOI.I 

100. 0 

July 

99-4 

99-7 

100. 0 

99.3 

103.2 

100. 0 

October  .... 

1915 
January  .... 

98.5 

99-5 

104.3 

100. 0 

99-5 

100.5 

93.5 

107.5 

98.0 

April 

102.7 

lOI.O 

lOI.O 

97.8 

114. 0 

100. 0 

July, 

108.9 

106.3 

108.2 

104.3 

114. 0 

114. 0 

October  .... 

II3-5 

108.8 

115.9 

III. 5 

119. 4 

119. 4 

1916 

January  .... 

112. 9 

no. 5 

124.5 

117. 3 

119-4 

113. 0 

April 

115. 6 

113. 0 

123. 1 

128.8 

124.7 

115. 0 

July 

114. 1 

III. 4 

117. 8 

121. 6 

129.0 

112. 0 

October   .... 

112. 7 

no. I 

114. 9 

119.4 

126.9 

IIO.O 

1917 

January  .... 

112. 7 

no. I 

114.4 

123.7 

134-4 

116. 0 

April 

I  ID.  4 

107.9 

113. 0 

123.7 

134-4 

112. 0 

July 

IIO.O 

107.6 

114-4 

130.2 

143.0 

124.0 

October   .... 

IIO.O 

107.6 

121. 2 

159.7 

144. 1 

125.0 

1918 

January  .... 

IIO.O 

107.5 

119. 2 

138.8 

148.4 

128.0 

April 

IIO.O 

107.6 

132.7 

140.3 

162.4 

135-0 

July 

IIO.O 

107.6 

141. 8 

146.0 

167.7 

144.0 

October   .... 

105.6 

103.2 

112. 5 

118. 0 

122.6 

113-0 

1919 

January  .... 

105.2 

102.9 

no. I 

112. 2 

II5-I 

112. 0 

April 

116. 0 

III.O 

116. 8 

116. 5 

130. 1 

122.0 

July     

135  I 

122.9 

127.9 

1259 

145-2 

125.0 

October  .... 

166.6 

142.9 

156.7 

150.4 

178.5 

1540 

1920 

January  .... 

230.9 

172.9 

217.3 

176.3 

240.9 

212.0 

April 

308.1 

248.5 

283.7 

253  .2 

298.9 

285.0 

July     ..... 

239 -8 

190.5 

208.7 

196.4 

214.0 

219.0 

October   .... 

295 -9 

211. 4 

227.4 

217.3 

235 -5 

244.0 

192 1 

January  .... 

300.8 

231.8 

246.6 

239.6 

225.8 

244.0 

April 

265.4 

214.0 

230.3 

2330. 

205.4 

239.0 

July 

246.9 

184.0 

195 -4 

193 -7 

176. 1 

212.0 

October  .... 

267.1 

212.2 

222.8 

228.6 

178.9 

251.6 

FRENCH  PUBLIC  FINANCE  [  59 

of  such  great  transactions,  but,  in  the  last  analysis,  they 
"boil  down"  to  a  simple  credit,  created  by  borrowing,  against 
which  was  debited  the  cost  of  articles  purchased. 

These  operations  were  much  simplified  when  the  United 
States  joined  in  the  war  and  placed  its  credit  to  the  extent  of 
nearly  $10,000  million  back  of  the  military  achievements  of 
the  allied  nations,  until  and  even  after  its  own  army  and  navy 
became  effective  fighting  o  ganizations. 

The  Period  of  Stabilization 

The  period  of  stabilization  lasted  from  September,  191 5, 
to  March,  191 9.  Although  in  the  twelve  months  prior  to 
this  arrangement  the  variation  in  quotations  of  franc  exchange 
had  ranged  over  90  centimes  to  the  dollar,  or  almost  20  per 
cent.,  yet  for  the  forty  months  following,  the  extreme  range 
was  30  centimes  and  usually  the  variations  were  very  small. 
The  tendency  was  slowly  upward  for  the  franc  for  the  greater 
part  of  the  time.  Meanwhile  the  neutral  exchanges  were 
fluctuating  widely  and  at  times  wildly.  The  table  dn  page  58 
gives  the  quotations  of  the  various  important  currencies 
on  a  percentage  basis,  the  average  rates  for  1913  being 
taken  as  100  per  cent.  The  chart  on  page  56  visualizes  the 
exchange  fluctuations. 

The  quotations  from  which  the  percentages  are  calculated 
are  the  average  of  the  high  and  low  quotations  of  the  respec- 
tive currencies  in  the  Paris  market  at  the  end  of  each  week, 
averaged  for  each  month.  Therefore  they  give  the  franc 
value  in  Paris  of  the  other  currencies.  In  studying  the 
figures  it  should  be  borne  in  mind  that  advances  in  the  value 
of  the  foreign  currencies  in  Paris  are  equivalent  to  a  decline 
in  the  value  of  the  franc  in  the  foreign  markets  and  vice 
versa. 


60  ]  BANKERS  TRUST  COMPANY 

The  most  important  facts  that  this  table  discloses  can 
best  be  seen  by  reference  to  the  chart  printed  on  page  56.  It 
will  be  noted  that  during  the  period  of  stabilization  the  neu- 
tral exchanges  tended  toward  a  steady  depreciation  in  the 
value  of  the  franc  and  that  toward  the  end  of  the  stabilization 
period,  after  a  short  time  of  simultaneous  decline  of  all  ex- 
changes, they  rose  sharply  in  value  in  Paris,  that  is  the  franc 
fell  sharply  in  all  foreign  markets.  This  movement  continued 
until  the  peak  was  reached  in  April  of  1920.  In  the  following 
three  months  the  foreign  currencies  fell  and  the  franc  im- 
proved. For  the  remainder  of  1920  the  process  was  reversed 
again.  During  192 1  the  fluctuations,  on  the  whole,  were  in 
favor  of  the  franc,  although  there  was  a  seasonal  fall  in  the 
autumn. 

Prices  During  and  Since  the  War 

In  concluding  this  review  of  the  war  credit  structure,  it 
will  be  interesting  to  note  the  course  of  prices  from  1914. 
We  present  the  data  in  two  tables.  The  first  of  these 
tables,  the  internal  price  table  printed  on  page  61,  gives  for 
France  and  several  other  countries  the  index  numbers  of 
wholesale  prices  at  home  as  a  percentage  of  191 3  prices.  The 
second  column  for  each  country  gives  the  relative  purchasing 
power  of  the  currency  of  each  country.  An  increase  in  prices 
is  of  course  reflected  by  a  relative  decrease  in  the  purchasing 
power  of  the  currency.  It  will  be  noted  that  in  all  countries, 
except  Germany,  maximum  prices  were  reached  during  the 
first  half  of  1920.  For  reasons  which  are  patent  to  everyone 
prices  in  Germany  continue  to  rise  and  will  of  course  do  so 
until  the  printing  presses  are  stopped. 

The  change  in  the  purchasing  power  of  the  different 
currencies  is  shown  very  clearly  by  the  chart  on  page  63. 


WHOLESALE  PRICE  INDEX  NUMBERS 

and 

INTERNAL  PURCHASING  POWER  OF  CURRENCIES 

Taken  as  percentages  of  19 13  values 


France 

United 

United 

Italy 

Germany 

Sweden 

States 

Kingdom 

Franc 

$ 

£ 

Lira 

Mark 

Krone 

6 

C3 

6 

Mu 

6 

C 

6 

6 

6 

iiZ 

a;Z 

Vi  0 

v^ 

•5  % 

^'Z 

^IZ 

•S  u 

«^ 

|«2 

11 

3 

P 

a 

3 

•eg 

P 
^t 

Oh 

a^ 

0. 

Oh 

•"^ 

Gh 

•"* 

cu 

I9I4 

January  .  . 

100 

100 

100 

100 

98 

102 

^ 

April  .  .  . 
July   .  .  . 

100 

lOI 

100 
99 

98 
100 

102 
100 

96 
96 

104 

104 

96 

104 

106 

94 

1x6 

85 

October  .  . 

107 

93 

99 

lOI 

105 

95 

191S 

January  .  . 

124 

81. 

99 

lOI 

113 

89 

April  .  .  . 
July  .  .  . 

13s 

142 

74 
70 

100 
lOI 

100 
99 

124 
125 

81 
80 

133 

75 

142 

71 

145 

69 

October  .  . 
1916 
January  ,  . 

158 

63 

lOI 

99 

129 

77 

179 

56 

no 

91 

145 

69 

April  .  .  . 
July   .  .  . 

190 
186 

53 

54 

117 
119 

85 

84 

157 
153 

^3 
65 

201 

SO 

IS3 

65 

185 

54 

October  .  . 

198 

SI 

134 

75 

166 

60 

1917 

January  .  . 

215 

47 

150 

67 

187 

53 

229 

44 

April  .  .  . 

248 

40 

171 

58 

203 

49 

26s 

37 

56 

July   .  .  . 

268 

37 

I8S 

54 

208 

48 

304 

Z3 

)    179 

244 

41 

October  ,  . 

284 

35 

180 

56 

212 

47 

350 

28 

1918 

January  .  . 

313 

32 

185 

54 

219 

46 

367 

27 

April  .  .  . 
July   .  .  . 

333 

337 

30 
29 

190 
198 

53 

51 

223 

227 

45 

44 

407 

435 

24 
23 

217 

46 

339 

29 

October  .  . 
1919 
January  .  . 

360 

28 

204 

49 

233 

43 

443 

22 

348 

29 

203 

49 

224 

45 

327 

30 

369 

27 

April  .  .  . 

332 

30 

203 

49 

217 

46 

330 

30 

41S 

339 

29 

July  .  .  . 

349 

29 

218 

46 

243 

41 

362 

28 

24 

320 

31 

October  .  , 

382 

26 

223 

45 

264 

38 

390 

25 

307 

33 

1920 

January  .  . 

487 

21 

248 

40 

289 

34 

504 

19 

319 

31 

April  .  .  . 

588 

17 

265 

37 

313 

32 

664 

15 

i486 

6.7 

354 

28 

July   .  .  . 

496 

20 

262 

38 

299 

33 

604 

16 

363 

27 

October  .  . 

502 

20 

225 

44 

282 

35 

659 

IS 

346 

29 

1921 

January  .  . 

407 

24 

177 

56 

232 

43 

642 

15 

1439 

6.9 

267 

37 

April  ,  .  . 

347 

29 

154 

65 

199 

50 

584 

17 

1326 

7.5 

229 

44 

July  .  .  . 

330 

30 

148 

68 

186 

54 

520 

19 

1428 

7.0 

211 

47 

October  .  . 

331 

30 

150 

66 

163 

61 

599 

16 

2460 

4.0 

175 

57 

Wholesale  Price  Index  Nos.  Used:  France,  Bureau  de  la  Statistique  Generale; 
United  States,  Bureau  of  Labor;  United  Kingdom,  Statist;  Italy,  Bachi;  Germany, 
Ofi&cial;  Sweden,  Svensk  Handelstinding. 

Maximum  price;  France,  588,  April,  1920;  United  States,  272,  May,  1920  United; 
Kingdom,  313.  April,  1920;  Italy,  664,  April,  1920;  Germany,  6,458,  May,  1922;  Sweden, 
366,  June,  1920. 

Lowest  Purchasing  Power;  France,  17,  April,  1920;  United  States,  36,  May,  1920; 
United  Kingdom.  32,  April,  1920;  Italy,  15,  April,  1920;  Germany,  1.5.  May,  1922; 
Sweden,  27,  June,  1920. 

[61 


62 ]  BANKERS  TRUST  COMPANY 

The  table  on  page  65  gives  the  purchasing  power  of  the 
franc  abroad — in  New  York,  London,  Rome,  Berhn  and 
Stockholm.  This  table  also  gives  first  the  price  index 
number  and  secondly  the  relative  buying  power  of  the  franc. 
This  table  is  constructed  by  taking  into  consideration  the 
two  factors  of  the  internal  price  index  number  and  the 
exchange  value  of  the  franc  in  the  several  markets  under 
review.  The  fact  which  we  have  endeavored  to  elucidate 
is  whether  the  purchasing  power  of  the  franc  was  greater 
at  home  or  abroad — also,  so  far  as  the  foreign  markets  are 
concerned,  in  which  one  the  franc  had  the  greatest  buying 
power. 

The  chart  on  page  66  makes  certain  facts  very  clear, 
First  of  all  it  shows  that  until  the  end  of  the  stabilization 
period  the  franc  would  buy  considerably  more  in  the  United 
States  or  in  England  than  it  would  at  home.  After  March, 
19 19,  when  the  pegs  were  drawn  and  the  exchanges  were 
allowed  to  find  their  own  levels,  the  conditions  were  changed 
as  the  franc  would  buy  more  at  home  than  it  would  in  New 
York  or  London.  However,  on  account  of  the  relatively 
greater  depreciation  of  the  lira,  the  Italian  market  was  a 
better  market  than  their  own  for  French  people  to  buy  in, 
and  the  sharp  fall  in  the  mark,  notwithstanding  the  greatly 
increased  prices  in  Germany,  has  made  that  market,  until 
quite  recently,  at  any  rate,  the  most  favorable  market  in 
which  the  Frenchman  could  buy. 

As  may  be  seen  by  reference  to  the  table  on  page  61,  giving 
the  internal  purchasing  power,  the  franc  did  not  fall  in  home 
purchasing  power  below  25  per  cent,  of  its  pre-war  value 
except  during  1920  when  it  touched  17  per  cent.  In  Octo- 
ber, 1921,  it  would  buy  about  30  per  cent,  of  what  it  would 
buy  in  191 3.    By  reference  to  the  table  on  page  65  giving  the 


PURCHASING  POWER  OF  VARIOUS  CURRENCIES 
IN  HOME  MARKETS 


63 


64  ]  BANKERS  TRUST  COMPANY 

external  purchasing  power  of  the  franc  it  will  be  seen  that 
in  the  American  market  and  in  London  the  purchasing  power 
of  the  franc  fell  in  April,  1920,  as  low  as  one-eighth  of  its 
pre-war  value.  The  franc  in  October,  1921,  would  buy  in 
New  York  about  25  per  cent,  of  what  it  would  buy  in  1913. 
It  would  buy  in  London  almost  as  much  as  it  would  at  home 
(29%);  in  Italy  a  little  more  (31%);  and  in  Germany  one 
and  two-thirds  as  much  (51%). 

An  interesting  fact  disclosed  by  a  further  study  of  these 
tables  and  charts  and  of  the  table  on  page  40  is  that  prices 
advanced  more  rapidly  than  the  increase  in  volume  of  the 
purchasing  power  media — currency  and  bank  deposits — and 
that,  just  as  the  purchasing  power  media  reached  its  apex, 
prices  began  to  turn  downward  and  fell  sharply  thereafter, 
when  theoretically  they  should  have  maintained  their  ad- 
vance. Declines  in  England  and  the  United  States  were 
forced  by  somewhat  drastic  credit  deflation,  but  in  France 
we  have  the  same  downward  trend  of  prices  notwithstanding 
maintained  inflation. 

For  over  two  years  the  note  circulation  of  the  Bank  of 
France  has  fluctuated  around  37  billion  francs.  In  September, 
1920,  it  got  up  as  high  as  39,207  million,  rising  from  36,255 
million  in  October,  1919.  Since  then  the  circulation  has 
gradually  worked  down  again  until  on  December  22, 1921, 
it  stood  at  36,226  million.  Professor  Cassel,  the  great  Swedish 
economist,  in  his  recent  work,  "The  World's  Currency  Prob- 
lems,'* takes  the  position  that  **the  first  direct  aim  of  the 
monetary  policy  of  every  country  must  be  to  give  a  stable 
internal  value  to  its  own  monetary  standard,"  and,  as  other 
economists  also  have  pointed  out,  he  claims  that  the  question 
of  the  prices  at  which  commodities  are  exchanged  for  money 
is'not  of  so  much  moment  as  that  exchanges  should  be  made 


EXTERNAL  PURCHASING  POWER  OF  FRANC 

In  Various  Markets 
(In  percentages  of  19 13  wholesale  prices) 


In  United 
States 

In  United 
Kingdom 

In 
Italy 

IN 

Germany 

IN 

Sweden 

h 

Is 

Is 

h 

Is 

0 

Is 

ca  > 
si  > 

3 
Oh 

CO  a} 

|l 

I9I4 

January  

April 

100 
98 
98 
97 

98 
102 

no 

115 

124 
134 
136 
150 

169 

189 
203 
198 

203 
209 
218 
215 

213 

235 
294 
371 

573 
816 
628 
666 

533 

408 
365 
400 

100 
102 
102 
103 

102 
98 
91 
87 

81 

75 
74 
66 

59 
SZ 
49 
51 

49 

4! 
46 

47 

47 
43 
34 
27 

17 
12 
16 
15 

19 

24 
27 

25 

98 
96 
97 
105 

112 
126 
133 
141 

161 
178 
176 
183 

189 
219 
224 
228 

235 
240 

244 
240 

230 
241 
299 
377 

499 
778 
560 
596 

538 
426 
343 
345 

102 
104 
103 

95 

89 
79 

75 
71 

62 
56 
57 
55 

53 

46 
45 
44 

43 

42 
41 
42 

43 
42 

20 
13 
18 
17 

18 
23 
29 
29 

July 

October 

1915 

January  

April 

July 

October 

1916 

January  

April 

' 

July 

October 

1917 

January  

April 

July 

October 

1918 

January  

April 

July 

October 

436 

414 
395 
403 
462 

562 
896 
593 
752 

628 
533 
408 
400 

23 

1919 
January  

278 
271 
297 
328 

418 
471 
429 
382 

359 
380 
302 
323 

36 
37 
34 
30 

24 
21 
23 
26 

28 
26 
33 
31 

24 
25 

April    ........ 

July 

24 

October 

1920 

January  

April 

July 

October 

1921 

January  

April 

July 

October 

180 
335 
360 
278 

287 
239 
200 
197 

56 
29 
28 
36 

34 
40 
50 
SI 

18 
II 
16 
13 

IS 

19 
24 

25 

This  table  is  based  as  to  method  of  presentation  upon  a  table  published  in  "Paper 
No.  3,  Currency  Statistics"  prepared  for  the  1920  Brussels  International  Monetary 
Conference,  but  the  calculations  have  been  made  de  novo.  In  determining  the  purchas- 
ing power  of  the  franc  in  other  countries  two  factors  are  involved,  namely,  (i)  the 
cost  of  goods  in  those  countries  in  their  home  currencies  and  (2)  the  cost  of  the  foreign 
currency  in  francs.  In  compiling  the  external  price  index  number,  the  internal  wholesale 
price  index  number  of  each  country  is  multiplied  by  the  exchange  rate,  taken  as  a 
percentage  of  the  average  rate  for  1913  and  the  product  isdivided  by  100. 


6s 


PURCHASING  POWER  OF  FRANC  IN  FOREIGN  MARKETS 

COMPARED  WITH  PURCHASING  POWER  AT  HOME 
661 


FRENCH  PUBLIC  FINANCE  [  ^'] 

on  some  stabilized  basis,  that  is  to  say,  if  all  purchases  and 
sales  are  made  on  the  same  basis,  it  does  not  matter  particu- 
larly whether  that  basis  is  a  higher  or  a  lower  one.  It  is  the 
fluctuation  in  the  value  of  the  currency  media  against  which 
goods  are  exchanged  which  causes  trouble.  France  has  ac- 
complished one  important  step  toward  stabilization  in  bring- 
ing the  volume  of  her  currency  under  control. 

The  policy  of  the  Bank  of  France  is  understood  to  be  to 
return  to  the  normal  pre-war  exchange  gradually  and  slowly 
without  violent  fluctuations,  but  always  proceeding  toward 
the  stabilization  of  the  franc  at  the  pre-war  exchange  value. 


Chapter  VI 

Behind  the  Lines 
1914 

TN  general  the  economic  status  of  France  during  the  first 
-*-  half  of  1 9 14  was  satisfactory.  Foreign  commerce  was 
large,  labor  was  well  employed,  the  crops  of  1913  had  been 
good  and  the  promise  was  good  for  plenty  of  wine  and  wheat 
for  1914.  Railroad  receipts,  bank  clearings,  and  bank  dis- 
counts indicated  that  business  generally  was  active  and,  on 
the  whole  satisfactory,  notwithstanding  a  slight  recession  in 
prices. 

There  were  two  clouds  on  the  horizon  which  it  was  not 
pleasant  to  contemplate.  One  was  the  continued  unrest  in 
the  near  East  and  the  other  was  the  further  increase  in  arma- 
ments which  took  place  in  the  second  half  of  1913.  These 
conditions  had  caused  the  continuation  of  the  decline  in 
security-values  which  had  been  a  marked  feature  of  all  stock 
exchange  markets  since  1909. 

Pre- War  Finances 

This  situation  was  not  helped  by  the  fact  that  the  esti- 
mated budget  for  1914  was  placed  at  over  $1,000,000,000  as 
compared  with  expenses  for  1913,  then  estimated  at  around 
$940,000,000,  an  estimated  increase  of  over  $60,000,000.  To 
meet  this  increase,  made  necessary  chiefly  by  the  increased 
military  estimates — the  reader  should  not  forget  that  the 
world  was  still  on  a  peace  basis — it  was  decided  to  make 
a  new  issue  of  rentes  and  to  place  a  tax  upon  incomes  and 
to  increase  other  taxes.  The  new  loan  was  for  a  par  value 
681 


FRENCH  PUBLIC  FINANCE  [  69 

of  ^170,728,0x30  at  3>^  per  cent.,  sold  to  yield  $155,365,000 
cash.  The  other  provision  to  meet  the  increased  needs  of  the 
state  was  found  in  the  tax  on  incomes.  It  was  not  until 
July  II  that  this  tax  was  voted  with  the  adoption  of  the 
budget  for  the  year  1914,  six  months  of  which  had  already 
elapsed. 

The  Assassination  of  Ferdinand 

Meanwhile  all  financial  markets  were  anxiously  watching 
the  course  of  events  in  Serbia,  due  to  the  tragic  death  at 
Sarajevo  on  June  28,  1914,  by  the  hand  of  an  assassin,  of  the 
Archduke  Francis  Ferdinand,  heir  to  the  Austro-Hungarian 
throne  and  of  his  morganatic  wife,  the  Duchess  of  Hohenberg. 
While  the  death  of  the  Archduke  was  not  thought  to  have 
any  political  significance,  yet,  because  of  the  unsettled  condi- 
tions in  the  Balkans,  and  the  dynastic  importance  of  the 
victim,  the  gravest  feelings  of  apprehension  spread  over  the 
capitals  of  the  world,  and  not  without  reason. 

Public  funds  declined  heavily,  while  the  great  banks 
raised  their  discount  rates  in  a  vain  effort  to  steady  the 
situation  and  conserve  their  reserves. 

The  Markets  Collapse 

The  situation  was  so  serious  that  as  early  as  July  29 
settlements  of  term  operations  on  the  Paris  bourse  due  to 
be  made  on  July  31  were  deferred  until  August  31  and  the 
same  steps  were  taken  in  the  open  market. 

The  news  from  Paris  on  July  30  was  that  the  securities 
market  had  completely  collapsed.  In  fact,  three  days  before, 
there  was  "such  a  rush  of  sales  that  all  markings  crumbled 
away."     The  fall  of  the  rente  was  unprecedented,  interfering 


70  J  BANKERS  TRUST  COMPANY 

with  settlements  on  account  of  the  recently  issued  loan  and 
embarrassing  the  state  treasury.  Gold  disappeared  from 
circulation  and  the  banks  were  thronged  with  people  anxious 
to  withdraw  their  money.  Business  in  foreign  exchange  was 
completely  disorganized  and  discount  rates  advanced  from 
3>^%  to  4>2%  and  rates  on  collateral  loans  from  4>2%  to 
5/^%-  The  coulisse  or  "curb"  market  was  closed,  but  the 
great  exchange  nominally  was  still  open. 

To  ease  the  currency  situation,  the  Bank  of  France  immedi- 
ately arranged  to  issue  20  franc  and  5  franc  notes  and,  to 
protect  the  savings  banks,  provision  was  made  that  not  more 
than  50  francs  could  be  drawn  every  two  weeks  by  any  one 
depositor. 

These  happenings  all  occurred  in  the  last  days  of  July  on 
the  mere  rumor  of  war.  On  August  i,  the  German  army 
invaded  France  and  war  had  begun. 

The  First  Financial  Steps 

Economic  events  followed  each  other  as  rapidly  as  did 
political  and  military  events.  On  August  i  a  decree  was 
issued  ordering  a  thirty  days  moratorium,  that  is  a  proro- 
gation of  the  dates  of  payments,  for  commercial  notes  and 
for  protested  paper. 

Bank  depositors  might  not  draw  more  than  5%  of  their 
total  deposits,  except  when  the  deposit  was  under  250  francs 
or  where  the  money  was  needed  for  pay-rolls. 

Subscribers  to  the  recent  government  loan  were  offered 
inducements  to  anticipate  deferred  payments.  A  further 
provision  in  regard  to  operations  on  the  bourse  was  that 
stocks  must  be  delivered  within  forty-eight  hours,  the 
broker  to  be  penalized  for  failure  to  deliver.  This  provision 
was  evidently  intended  to  curb  speculative  transactions. 


FRENCH  PUBLIC  FINANCE  [  7 1 

The  First  Eighteen  Laws 

An  extraordinary  session  of  parliament  was  called  for 
August  fourth.  At  this  session,  without  discussion,  there 
were  passed  eighteen  laws  to  facihtate  the  conduct  of  the 
war,  of  which  the  most  important  were  the  laws  opening  war 
credits,  giving  the  families  of  men  called  to  active  service  a 
daily  allowance  of  i  franc  25  centimes  (about  25  cents),  with 
an  extra  allowance  of  50  centimes  (10  cents)  for  each  infant; 
giving  the  Bank  of  France  and  the  Bank  of  Algeria  the  right 
to  increase  their  notes;  declaring  France  and  Algeria  to  be 
in  a  state  of  siege  (this  made  it  possible  to  dispense  for  the 
time  being  with  the  ordinary  civil  processes  and  to  conduct 
the  affairs  of  the  country  on  a  more  or  less  arbitrary  basis); 
giving  the  military  the  right  to  requisition  food  and  lodgings 
and  establishing  a  censorship  of  the  press. 

On  the  sixth  of  August  the  Bank  of  France  discontinued 
publishing  its  weekly  statements. 

The  Conscription 

The  conscription  of  all  men  capable  of  bearing  arms,  up 
to  the  age  of  forty-seven,  brought  about  economic  changes  of 
the  greatest  importance,  as  it  deprived  almost  every  family 
in  France  of  its  normal  bread  winner.  Mildred  Aldrich  tells 
us  in  her  "A  Hilltop  on  the  Marne**  how  this  affected  one 
little  district.  She  says,  "Our  little  commune  sent  two  hun- 
dred men  only,  but  to  take  two  hundred  able-bodied  men 
away  makes  a  big  hole  and  upsets  life  in  many  ways.  .  .  . 
Really  I  don't  know  which  are  the  more  remarkable,  the  men 
or  the  women.  ...  It  is  harvest  time,  you  know,  just  as 
it  was  in  the  invasion  of  1870.''  Then  she  tells  of  the  women 
in  the  grain  fields,  harvesting,  helped  by  old  men  of  seventy. 


72  ]  BANKERS  TRUST  COMPANY 

working  cheerfully  from  sunrise  to  sunset,  some  of  them 
starting  their  own  work  at  three  in  the  morning,  so  as  to  be 
free  to  go  into  the  fields  later  in  the  morning. 

Emergency  Economic  Measures 

To  help  the  food  situation,  the  government  suspended 
import  duties  on  wheat,  barley,  oats,  corn  and  hay,  and 
authorized  the  free  importation  of  frozen  meats  and  potatoes, 
and  prohibited  exports  of  foodstuffs.  The  exportation  was 
prohibited,  also,  of  all  classes  of  materials  which  would  be 
useful  in  the  conduct  of  the  war. 

New  Currency  Provisions 

To  meet  the  need  for  small  change  which  became  more 
acute  as  time  went  on,  because  of  the  hoarding  of  silver  as 
well  as  gold,  while  the  Bank  of  France  notes  were  of  the 
relatively  large  denominations  of  five  francs  and  upwards, 
the  chambers  of  commerce  throughout  France  arranged  to 
issue  notes  of  50  centimes  (10  cents),  one  franc  (20  cents)  and 
two  francs,  against  a  deposit  of  50  and  100  franc  notes  with 
the  Bank  of  France.  However,  the  Paris  chamber  of  com- 
merce did  not  make  such  issues  ulitil  1919,  so  that  the  require- 
ments for  sin  all  change  were  frequently  met  in  Paris  by 
making  small  packages  of  postage  stamps  of  varying  denom- 
inations, which  were  accepted  practically  everywhere.  The 
chambers  of  commerce  notes,  except  those  of  the  Paris  cham- 
ber of  commerce  which  circulate  everyv^here,  are  only  valid 
in  the  district  where  issued.  As  time  elapsed  they  became 
very  much  worn  and  dirty,  until  finally,  in  192 1,  provision  was 
made  for  their  withdrawal  when  a  sufficient  number  of  new 
metallic  token  coins,  also  to  be  issued  by  the  chambers  of 
commerce,  could  be  provided  to  take  their  place. 


FRENCH  PUBLIC  FINANCE  [  73 

The  Securities  Market  in  igi4 

On  account  of  the  adjournment  of  the  settlement  on  the 
bourse  on  July  31  the  capital  used  in  carrying  over  trans- 
actions became  immobilized.  The  bourse  was  closed  on 
September  third.  In  December  the  members  of  the  bourse 
(Chambre  Syndicale  des  Agents  de  Change)  offered  to  pay 
40  per  cent,  on  account.  This  made  it  possible  tentatively 
to  adjust  the  accounts  and  to  reopen  the  bourse  for  trading 
in  a  limited  way.  The  settlement  was  not  completed  until 
September,  1915.  The  adjournment  of  the  settlement  caused 
great  inconvenience  to  the  banks  and  was  one  of  the 
principal  reasons  for  the  moratoria  referred  to  in  a  sub- 
sequent paragraph.  The  reopening  took  place  on  December 
7,  19 14.  At  first  only  cash  transactions  were  permitted.  It 
was  remarked  as  a  favorable  indication  that  the  price  for 
three  per  cent,  rentes  had  declined  only  10  points,  viz.:  to 
TiYi  from  82>^  on  July  30.  The  volume  of  transactions 
during  the  month  was  small  and  the  fear  of  a  big  rush  of 
celling  orders  was  not  realized. 

The  Industrial  Situation  in  igi4 

The  immediate  effect  of  the  war  on  the  industries  of 
France  was  temporarily  to  paralyze  them.  The  mobilization 
of  workers,  the  moratoria  tying  up  working  capital,  the  break- 
ing down  of  the  foreign  exchanges  and  the  dislocation  of 
transportation  all  worked  together  to  make  it  next  to  impos- 
sible to  carry  on  industrial  undertakings  and  seriously  ham- 
pered merchandizing.  The  immediate  result  was  to  throw 
many  people  out  of  work,  for  although  some  three  million 
men  had  been  mobilized  there  were  perhaps  three  or  four 
times  that  number  of  male  and  female  operatives  who  were 


74  ]  BANKERS  TRUST  COMPANY 

deprived  of  employment.     Of  course  this  was  all  changed  a 
little   later   when   the   factories   became   busy  turning   out 

fnunitions.  To  meet  this  earlier  situation  the  government 
reared  a  national  unemployment  fund  to  supplement  the 
unds  of  the  various  workingmen's  organizations  for  mutual 
aid  which  are  an  interesting  feature  of  French  industrial  life. 
At  the  close  of  the  year  the  industrial  situation  was  a 
mixed  one.  For  example,  the  leather  trades  were  working 
overtime  making  shoes,  harness  and  other  leather  goods  for 
the  army,  while  the  silk  trade  was  absolutely  dead,  the  offices 
and  factories  closed.  The  wine  harvest  was  unusually  good, 
but  the  beet-sugar  industry  was  practically  ruined,  because 
of  the  German  occupation  of  the  northeast  districts  where 
the  sugar  is  produced.  The  wheat  harvest  was  only  fair. 
The  metal  trades  had  not  yet  felt  in  any  marked  way  the 
stimulus  of  war  requirements. 

Toward  the  end  of  the  year  it  was  deemed  possible  to 
make  some  modifications  in  the  regulations  in  regard  to  the 
moratoria  and  the  banks,  under  the  leadership  of  the  Bank  of 
France,  became  more  liberal  in  the  treatment  of  their  cus- 
tomers, discounting  more  freely  and  also  loaning  very  liberally 
upon  securities. 

Thus  with  the  banks,  the  bourse  and  general  business  once 
again  upon  a  somewhat  normal  basis,  there  was  a  better  feel- 
ing among  business  men. 


Chapter  VII 

Life  and  Business  Under  Government  Regulation 

1915-1920 

TNSTEAD  of  tracing,  chronologically,  the  course  of  events 
-*-  in  the  years  subsequent  to  1914,  it  will  probably  be  more 
to  the  purpose  to  consider  topically  the  happenings  of  those 
years  back  of  the  firing  lines. 

Food  Regulations 

It  was  a  favorite  saying  of  Napoleon  that  "an  army 
marches  on  its  stomach."  It  is  no  less  true  of  a  nation  that 
to  insure  the  orderly  and  peaceable  pursuit  of  its  vocational 
life  it  must  be  fed.  Therefore,  as  we  have  already  seen,  one 
of  the  first  acts  of  the  government  was  to  remove  restrictions 
on  imports  of  food. 

France  is  primarily  an  agricultural  community.  Nor- 
mally a  large  percentage  of  the  food  consumed  by  the  French 
people  is  produced  at  home.  For  years,  before  the  war,  the 
French  grower  of  beef,  mutton  and  other  meat  foods  had 
been  protected  from  the  competition  of  foreign  meat  products 
by  drastic  legislation  prohibiting  their  importation.  France 
even  had  no  cold  storage  warehouses  for  meat  products. 
Early  in  191 5  the  war  office  was  authorized  to  obtain  frozen 
meats  for  the  use  of  the  army,  but  only  small  quantities  were 
allowed  to  reach  the  civil  butcher. 

By  191 7  French  herds  of  cattle  had  fallen  from  a  normal 
stock  of  16  million  head  to  I2>^  million.  Steps  were  then 
taken  to  restrict  somewhat  the  use  of  meat  by  closing  the 
butcher  shops  early  in  the  afternoon  and  by  forbidding  any 

[75 


"jd  ]  BANKERS  TRUST  COMPANY 

meat  being  served  for  the  evening  meal  in  hotels  and  res- 
taurants on  Sundays. 

These  provisions  not  being  effective  in  reducing  consump- 
tion, two  meatless  days  were  instituted,  with  exceptions  in 
cases  of  illness  and  of  the  army.  These  restrictions  were  soon 
removed,  but,  in  191 8,  it  became  necessary  to  institute,  for  a 
period  of  about  six  months,  a  regime  of  three  meatless  days 
a  week  and  carefully  to  regulate  the  methods  of  butchering 
and  sale.  The  advance  in  market  prices  helped  very  much 
to  restrict  consumption  in  this  and  in  subsequent  years. 
The  people  learned  to  do  without  so  much  meat  as  they  had 
used  in  pre-war  days,  substituting  fish  and  using  other  foods 
in  greater  proportions. 

The  regulations  in  regard  to  bread  and  the  cereals  from 
which  bread  could  be  made,  were  multifarious  and  constantly 
changing.  It  was  their  purpose  to  guarantee  an  adequate 
supply  of  nutritious  bread  at  prices  not  too  high  for  the  means 
of  the  poorer  people,  who  in  France  and  other  continental 
countries  literally  find  in  bread  "the  staff  of  life." 

Similarly,  there  were  special  regulations  governing  the  use 
of  dairy  products  and  of  fats.  It  was  found  necessary  to 
restrict  severely  the  use  of  sugar,  for  France  was  not  only 
called  upon  to  suffer  a  great  reduction  in  production  of  sugar 
but,  with  the  rest  of  the  world,  suffered  from  the  general  dis- 
location of  the  sugar  trade. 

In  the  effort  to  have  the  supply  of  foods  of  all  kinds  equal, 
not  to  the  normal  demand,  but  to  actual  requirements  for  the 
support  of  the  army  and  of  the  civil  population,  there  were 
many  special  regulations,  vexatious  but  probably  necessary, 
in  regard  to  the  character  of  the  meals  and  the  amount  of 
food  which  might  be  served  in  restaurants  and  hotels  and  as 
to  the  hours  during  which  public  eating  places  could  be  open. 


FRENCH  PUBLIC  FINANCE  [  TJ 

Menus  were  subjected  to  official  inspection   and   control. 
These  restrictions  were  especially  pronounced  during  191 8. 
After  the  armistice  the  restrictions  on  the  use  of  food, 
found  necessary  before  then,  were  gradually  removed. 

The  Liquor  Trade 

More  with  a  view  to  promoting  order  than  for  any  other 
reason,  the  use  of  absinthe  was  absolutely  forbidden  as  early 
as  1914.  The  annual  consumption  of  absinthe  was  estimated 
to  be  over  3^  quarts  per  capita,  a  startling  figure  when  the 
fact  is  borne  in  mind  that  the  use  of  absinthe  was  practically 
confined  to  about  a  quarter  of  the  population. 

Steps  were  taken  to  limit  the  sale  of  alcohol.  A  bill  was 
then  passed  by  parliament  dealing  with  the  drink  question 
which  reversed  the  usual  procedure  in  France  in  attempting 
to  enforce  instead  of  following  a  change  of  public  habits.  Its 
provisions  fell  into  two  categories,  one  prohibiting  absolutely 
the  consumption  of  certain  alcoholic  beverages  and  the  other 
attempting  to  control  the  opportunities  for  drink  in  certain 
industrial  areas.  Prohibition  of  alcohol  fell  under  the  first 
head.  Under  the  second  fell  the  prohibition  of  any  new  drink- 
ing places  for  the  sale  of  spirits  or  liquors,  the  premises 
in  question  being  those  selling  for  consumption  on  the  spot 
without  food — in  other  words,  public  houses.  The  removal 
of  an  existing  drinking  house  within  a  radius  of  650  feet  by 
an  owner  or  his  heirs  was  not  to  count  as  a  new  opening. 

The  measure  was  taken  to  insure  order  and  the  prompt 
and  eflPective  manufacture  of  munitions  of  war. 

Fuel  and  Light 

Another  department  of  life,  affecting  all  classes  of  the 
population,  in  which  the  government  intervened  was  that  of 


78 ]  BANKERS  TRUST  COMPANY 

coal  and  its  related  or  derived  commodities,  oil,  gas  and 
electricity. 

Under  normal  conditions,  before  the  war,  France  con- 
sumed some  60  million  tons  of  coal  annually  of  which  amount 
about  one-third  was  imported. 

The  war  somewhat  reduced  these  requirements,  but  at  the 
same  time  cut  off  the  supplies  theretofore  obtained  from 
Germany  and  from  Belgium,  while,  after  the  mines  of  the 
north  of  France  fell  into  German  hands,  the  supply  therefrom 
was  also  lost. 

To  aggravate  the  situation,  as  the  war  progressed,  the 
demand  for  coal  increased.  To  meet  this  combination  of  a 
diminished  and  diminishing  supply  and  of  an  increasing 
demand  the  government  at  first  tried  fixing  the  price  of  coal 
and  restricting  its  Use,  and  the  use  of  gas  and  electricity. 

The  situation  became  so  serious  in  1917  that  the  govern- 
ment decided  to  take  over  the  domestic  coal  supply  and  also 
the  imported  supplies;  coal  to  be  sold  thereafter  at  uniform 
rates  according  to  quality.  Distribution  was  placed  under 
the  supervision  of  a  special  bureau  in  the  Ministry  of  Supplies. 
A  few  weeks  later  a  special  Ministry  of  Coal  was  created. 
Arrangements  were  also  made  to  facilitate  the  importation  of 
coal  from  England  by  making  payments  through  the  Bank 
of  France  at  a  fixed  rate  of  exchange. 

Other  Cases  of  Government  Control 

Government  control  was  also  felt  in  other  departments  of 
life.  For  instance,  in  the  supervision  of  transportation,  to 
save  fuel  and  to  keep  the  tracks  and  equipment  free  for  use 
of  the  army;  in  supervision  of  industrial  operations;  in 
supervision  of  places  of  amusement,  with  a  view  to  reducing 
the  number  in  use  on  any  one  evening,  this  again  to  save  fuel. 


FRENCH  PUBLIC  FINANCE  [  79 

Then  the  government  intervened  in  connection  with  ocean 
freights,  through  a  maritime  transport  committee. 

Through  the  chambers  of  commerce  purchases  for  the 
needs  of  individual  locaHties  were  carried  out.  For  instance 
the  chamber  of  Marseilles  was  granted  lo  million  francs  by 
the  government  to  buy  wheat  and  flour  abroad  and  to  sell 
them  at  cost  price.  Nantes  in  the  same  way  received  7>^ 
million  francs,  Brest  four,  Dunquerque  five  and  so  on. 

Every  effort  was  made  to  stimulate  the  people  to  live 
economically.  This  was  done  for  two  reasons,  primarily  to 
save  food,  clothing  and  fuel  and  again  to  save  money  so  that 
these  savings  might  be  loaned  to  the  government  for  the  con- 
duct of  the  war.  To  assist  in  these  economies  bread  cards, 
meat  cards  and  fuel  cards  were  introduced. 

It  was  not  until  late  in  1920  that  these  restraints  upon  the 
usual  mode  of  living  were  finally  removed  and  business  in 
commodities  permitted  to  resume  its  normal  course.  The 
uneconomic  practice  of  "grants"  and  "subsidies"  was  then 
abolished,  the  price  of  bread  was  raised  to  correspond 
to  the  price  of  wheat,  and  railway  and  postal  rates  were 
advanced  with  a  view  to  putting  them  on  or  nearer  to  a 
paying  basis. 

The  Moratoria 

Not  only  did  the  government  tell  the  people  what  they 
could  eat  and  wear  and  when  they  might  attend  the  opera 
and  when  a  "movie  show'',  how  much  fuel  they  might  use,  how 
much  light  they  might  burn,  when  and  where  they  might 
travel,  but  they  were  also  permitted  on  the  one  hand  to  defer 
the  payment  of  debts  and  of  rents  and  on  the  other  were  for- 
bidden to  collect  moneys  due  them  if  the  debtor  was  unable 
to  pay. 


8o  ]  BANKERS  TRUST  COMPANY 

In  the  past,  at  times  of  special  political  or  economic  stress, 
moratoria  had  obtained.  In  1814  following  the  Napoleonic 
wars;  in  1839  a  year  of  political  and  social  unrest;  in  1848 
when  the  July  monarchy  was  superseded  by  the  Second 
Republic;  in  1856,  because  of  great  floods  destroying  life  and 
property  and  interfering  with  the  normal  course  of  trade  and 
in  1870  because  of  the  war  with  Prussia.  Except  that  of 
1870  these  moratoria  were  of  short  duration.  They  were  of 
two  kinds,  that  of  a  system  of  delay  of  suits  or  protests  and 
that  of  an  extension  of  the  date  of  payment.  The  moratoria 
of  the  great  war  combined  these  two  systems.  In  their  incep- 
tion they  were  as  follows: 

1914 

July  29 — The  bourse  settlements. 

July  30 — Savings  banks  were  forbidden  to  pay  out  more  than  fifty 
francs  per  fortnight  to  depositors. 

July  31 — Commercial  bills. 

Aug.    I — Banks. 

Aug.    5 — Forced  circulation  of  bank  notes. 

Aug.  9 — Combination  moratorium  for  commercial  paper  and  bank 
deposits,  with  added  clauses  for  loans,  especially  advances- 
on  securities,  and  commercial  debts  not  in  the  form  of  defini- 
tive maturity. 

Aug.  10 — Law  suits. 

Aug.  14 — Rents. 

Aug.  29 — Coupons  on  securities. 

Sept.  23 — Interest  and  dividends. 

Sept.  27 — Insurance. 

The  bourse  began  to  resume  its  responsibilities,  in  a 
measure,  in  September,  191 5.  In  December,  1914,  the  banks 
took  the  initiative  in  freeing  themselves  from  the  benefits  of 
the  moratorium. 

The  moratoria  were  extended  from  time  to  time.  It  was 
not  until  December  28,  1920,  that  a  decree  was  issued  pro- 


FRENCH  PUBLIC  FINANCE  [  8 1 

viding  for  the  gradual  termination  of  these  arrangements. 
The  "frozen  credits"  of  the  Bank  of  France  were  at  their 
maximum  at  the  close  of  1914  when  they  amounted  to 
^670,000,000.  By  the  end  of  191 5  nearly  40  per  cent,  of 
them  were  liquidated.  At  the  time  of  the  armistice  about  a 
third  remained  unpaid.  After  that  they  ran  off  quite  rapidly, 
only  a  negligible  balance  being  still  unpaid  in  July,  1921. 

While  the  moratoria  were  especially  justified  in  France 
because  of  the  large  number  of  business  men  and  heads  of 
families  serving  in  the  army,  yet  they  were  a  great  handicap 
to  business  and  worked  real  hardship  to  many  creditors, 
especially  to  owners  of  property.  Not  receiving  rents,  they 
in  turn  could  not  pay  their  bills  and  so  the  vicious  circle  ran 
its  course  adding  to  the  trouble  which  it  aimed  to  cure.  Con- 
sidering that  the  net  product  of  house  rents  alone  in  France 
amounts  annually  to  $540,000,000  it  will  readily  be  seen  why 
this  special  consideration  given  to  lessees  was  so  burdensome 
not  only  to  lessors  but  also  to  a  large  circle  of  tradespeople 
as  well. 

Price  Regulation 

The  war  had  hardly  begun  before  steps  were  taken  to  reg- 
ulate the  prices  at  which  food  particularly,  but  also  other 
commodities,  could  be  sold.  As  early  as  the  third  week  in 
August,  1914,  special  committees  of  tradespeople  were  formed/ 
to  fix  maximum  prices  for  meat,  groceries,  and  flour.  In  the 
following  year  the  government  took  the  matter  in  hand. 
The  minister  of  pubhc  works  declared  in  August,  191 5,  that 
no  further  rise  in  the  price  of  coal  would  be  permitted.  Then 
in  October  or  November  the  minister  of  the  interior  gave  to 
mayors  and  prefects  the  privilege  of  fixing  prices,  especially 
of  bread  and  flour.     In  Paris  the  prefect  of  police  constituted 


J 


82  ]  BANKERS  TRUST  COMPANY 

a  commission  on  prices  which  was  to  draw  up  a  weekly  list 
of  prices,  wholesale  and  retail,  to  be  conspicuously  posted  in 
all  places  of  business  where  the  commodities  affected  were  sold. 

Late  in  1915  parliament  took  up  the  matter,  putting  laws, 
on  the  statute  books  which  permitted  the  government  to 
apply  drastic  measures  to  prevent  too  great  rises  in  prices,  r 

The  measures  instituted  by  the  government  thereafter 
were  varied,  ingenious  and  for  the  most  part  ineffective  in 
combating  the  inexorable  laws  of  economics.  Of  course 
where  the  government  saw  fit  to  establish  fixed  prices,  as  it 
did  for  bread  and  coal,  and  to  absorb  the  loss  which  resulted 
from  buying  at  higher  prices,  the  consuming  public  benefitted. 
However,  as  on  the  average  the  losses  exceeded  the  profits, 
the  general  treasury  had  in  the  end  a  heavy  loss  to  absorb. 
Exact  figures  are  not  available,  but  in  1920  were  stated  to  be 
around  ^1,200,000,000.  Thus,  in  these  cases,  the  increased 
cost  of  living  was  transferred  from  the  immediate  consumer 
to  the  taxpayer. 

Foreign  Trade 

Foreign  trade  during  the  war  period  was  greatly  hampered 
by  restrictions  necessarily  imposed  to  prevent  French  goods 
passing  to  enemy  aliens  through  the  media  of  non-combatant 
nations.  The  government  intervened  also  to  reduce  the  im- 
portation of  articles  of  luxury  and  to  facilitate  the  importa- 
tion of  articles  of  necessity,  such  as  coal,  and  of  munitions  of 
war  or  of  raw  materials  to  be  used  in  their  manufacture. 
After  the  armistice  these  restrictions  were  gradually  removed. 

Export  of  Capital 

In  1918  a  law  was  enacted  controlling  the  export  of  capital 
and  the  import  of  securities.     In  the  latter  part  of  1919  the 


FRENCH  PUBLIC  FINANCE  [  83 

minister  of  finance  stated  that  the  law  had  worked  very 
smoothly  and  that  the  necessary  procedure  had  been  very 
rapidly  understood  and  appreciated  by  the  banks  and  the 
trading  community.  General  authorizations  to  export  cap- 
ital for  the  purchase  of  goods  to  be  transferred  to  other 
countries  had  been  largely  renewed  after  careful  investigation, 
while  capital  was  also  being  permitted  to  be  exported  to 
enable  the  exploitation  of  French  concerns  abroad.  In 
certain  circumstances  owners  of  shares  in  foreign  companies 
had  been  allowed  to  export  funds  in  order  to  safeguard  their 
interests.  In  countries  where  it  had  been  considered  desir- 
able that  the  export  of  French  capital  should  be  authorized 
for  financing  foreign  enterprises,  it  had  been  stipulated  that 
shares  corresponding  to  this  capital  should  be  imported  into 
France.  Special  care  was  taken  to  see  that  securities  stolen  by 
the  enemy  in  Belgium  and  northern  France  and  that  German 
notes  or  money  should  not  be  brought  into  the  country. 
A  regulation  forbidding  travellers  to  export  more  than  i,ooo 
francs  ($200.)  in  Bank  of  France  notes  had  been  maintained, 
except  in  special  cases  on  economic  and  financial  grounds, 
but  a  regulation  prohibiting  the  exportation  of  Russian  or 
United  States  bank  notes  had  been  withdrawn. 


J 


Chapter  VIII 

Devastation  and  Reconstruction 
1914-1921 

TTOW  completely  the  Germans  carried  out  their  plans  for 
-*-  -■-  ruining  French  industries  we  have  been  graphically  told 
by  many  observers  who  have  visited  the  devastated  sections 
of  France  since  the  German  army  withdrew.  They  tell  us 
that  it  is  necessary  to  recollect  that  there  are,  roughly  speak- 
ing, two  sorts  of  devastation  in  the  area  which  the  Germans, 
at  one  time  or  another,  overran,  each  kind  introducing  a  dis- 
tinct problem  in  reconstruction  and  which  required  handling 
in  a  distinct  manner. 

The  Zone  of  Complete  Destruction 

As  shown  by  the  map  on  page  85  there  was  a  zone  of 
practically  complete  destruction.  This  started  at  the  English 
Channel,  in  the  northwest  corner  of  France,  winding  in  a  band 
of  varying  depth  all  the  way  across  the  country  to  the  Swiss 
frontier.  On  an  average,  it  was  perhaps  five  miles  deep.  This 
band  followed  the  "old  front  line."  Over  the  departments  of 
Pas-de-Calais,  Nord,  Somme,  Aisne,  Marne,  Meuse,  Meurthe- 
et-Moselle,  and  Vosges,  it  cut  a  hideous  gash.  It  should  be 
borne  in  mind  that  these  were  among  the  richest  industrial 
departments  of  France. 

For  months  at  a  time  large  sections  of  this  line  remained 
stationary;  that  is,  there  was  no  important  action,  but  a  rain 
of  high-explosive  shells  descended  unceasingly  upon  it,  so  that 
everything  that  stood  above  ground  was  sooner  or  later  blot- 
ted out.  Whenever  a  big  offensive  took  place,  such  as  the 
84] 


FRENCH  PUBLIC  FINANCE 


85 


86  ]  BANKERS  TRUST  COMPANY 

allied  advance  at  the  first  and  second  battles  of  the  Somme 
and  the  unsuccessful  German  attack  on  Verdun,  the  zone  of 
destruction  was  widened  and  deepened.  This  area  of  whole- 
sale destruction  included  an  important  section  of  the  French 
coal  fields,  of  which  Lens  was  a  center.  It  also  comprised  sev- 
eral hundred  square  miles  of  fertile  land  in  the  departments  of 
the  Somme  and  Aisne,  with  all  the  towns  and  villages  that 
dotted  them,  as  well  as  the  former  populous  cities  of  Arras, 
Douai,  St.  Quentin,  Cambrai,  Laon,  Soissons,  Reims,  and 
Verdun. 

Damage  not  so  Great  in  Second  Zone 

Between  this  zone,  over  which  the  battle  swayed  for  more 
than  four  years,  and  the  Belgian-Luxemburg  frontier  there 
is  a  section,  shown  lightly  shaded  on  the  map  on  page  85, 
which,  while  it  was  occupied  by  the  Germans  for  four  years, 
was  not,  generally  speaking,  fought  over.  Consequently,  it 
was  not  damaged  to  the  same  extent  or  in  the  same  devastat- 
ing way.  The  area  in  question  contains  the  cities  of  Lille, 
Roubaix,  Tourcoing,  Armentieres,  and  Valenciennes — all  im- 
portant industrial  centers.  It  also  comprises  a  part  of  the 
coal-mining  field  as  well  as  an  important  steel-making  district. 
This  area  was,  in  fact,  the  most  highly  organized  industrial 
region  in  France. 

It  suffered  damage  in  two  ways.  Cities  were  bombarded 
during  the  German  retreat  in  October,  191 8.  Except  in  a  few 
cases,  like  that  of  Valenciennes,  the  resulting  injury  was  not 
irreparable.  The  most  serious  damage  suffered  by  this  region 
was  by  reason  of  the  systematic  pillage  and  the  wanton,  delib- 
erate destruction  carried  out  by  the  Germans  during  their 
four  years  of  occupation. 


FRENCH  PUBLIC  FINANCE  [  87 

Conditions  Resulting  from  German  Pillage 

To  illustrate:  In  the  vicinity  of  Valenciennes  there  are  a 
number  of  coal  mines.  Until  the  final  German  retreat  they 
were  kept  in  more  or  less  continuous  operation.  The  Germans, 
just  before  their  departure,  blew  up  with  dynamite  the  hoist- 
ing apparatus  and  power  plants. 

Steel  works,  metal-working  establishments,  chemical 
works,  breweries,  and  sugar  refineries  were  the  special  target 
for  German  destruction  in  the  occupied  area.  After  stripping 
them  of  their  machinery  in  a  search  for  metals,  the  invaders 
blew  up  the  buildings.  This  condition  prevailed  over  a  large 
area. 

The  Extent  of  the  Damage 

The  devastated  area  covered  approximately  6,000  square 
miles  or  about  three-4Jej:u:eflt-4^fjj:ance^  The  population  of 
this  area  at  the  time  of  the  war  was  about  2,000,000  or  only 
about  five  per  cent,  of  the  people  of  France.  However,  when 
it  is  remembered  that  within  this  limited  area  lay  the  section 
of  France  from  which  came  14  per  cent,  of  the  wheat  pro- 
duced, 47  per  cent,  of  the  sugar,  55  per  cent,  of  the  flaxy 
74  per  cent,  of  the  coal,  92  per  cent,  of  the  iron  ore,  81  per 
cent,  of  the  iron,  60  per  cent,  of  the  steel,  80  per  cent,  of  the 
wool  products,  and  70  per  cent,  of  the  cotton  products,  then 
the  seriousness  of  the  situation  becomes  manifest. 

The  Money  Value  of  the  Losses 

The  official  estimate  placed  before  the  allied  reparation 
commission  by  the  French  government  of  the  property  losses 
which  the  country  sustained  by  the  German  invasion  was 
140,607  million  francs,  while  injuries  to  persons  were  esti- 


88 ]  BANKERS  TRUST  COMPANY 

mated  to  be  77,834  million  francs,  a  total  of  218,441  million 
francs.  These  figures  were  made  in  the  beginning  of  1920 
when  prices  in  France  were  nearly  six  times  pre-war  prices. 
If  we  reduce  the  amount  to  the  pre-war  price  basis  it  would 
come  in  round  figures  to  about  36  billion  francs  or  say,  7^ 
billion  dollars,  a  sufficiently  startling  sum. 

In  meeting  this  problem  and  the  greater  problems  of  the 
war  debt,  of  war  pensions  and  of  the  reconstitution  of  indus- 
trial and  commerical  life  throughout  the  republic,  France  has 
the  terrible  handicap  that  57  per  cent,  of  her  young  and 
middle  aged  men  were  killed  in  the  war  and  another  large 
percentage  so  seriously  incapacitated  by  wounds,  or  war 
caused  illnesses,  as  to  be  incapacitated  for  business  and  indus- 
trial life. 

Summation  of  Losses 

Following  is  a  computation  of  the  losses  inflicted  in  the 
world  war  upon  France  by  Germany,  as  compiled  by  M. 
Maurice  Casenave,  French  High  Commissioner  to  the  United 
States,  for  the  Institution  of  Politics  held  at  Williamstown, 
Massachusetts,  during  August,  1921: 
Man-Power:   Killed,  1,325,000;  Crippled  for  life,  690,000. 

A — Public  Property  Losses: 

3,524  towns  and  villages  destroyed  or  badly  damaged.; 

1,172  post  offices  destroyed; 

2,671  telegraph  stations  destroyed; 
34,741  telephones  destroyed; 

1,492  miles  of  double  track  road  completely  destroyed. 

1,481  miles  of  single  track  road  completely  destroyed; 

1,529  bridges,  culverts,  tunnels  completely  destroyed; 
683  miles  of  canals  completely  destroyed; 
32,748  miles  of  highway  destroyed; 

7,300  schools  and  colleges  completely  destroyed. 


FRENCH  PUBLIC  FINANCE  [  89 

B — Private  Property  Losses: 

265,000  buildings  completely  destroyed; 
300,000  buildings  severely  damaged; 

4,701  factories  and  mines,  each  employing  over  20  persons,  de- 
stroyed ; 
6,340  factories,  each  employing  less  than  20  persons,  destroyed; 
8,242,390  acres  of  land  rendered  unfit  for  cultivation; 
593,000  milch  cows  removed; 
469,000  sheep  and  rams  removed; 
367,000  horses,  asses,  and  mules  removed; 
338,000  pigs  removed. 

Reconstruction 

So  much  then  for  the  losses  occasioned  by  the  war.  Let 
us  nov7  turn  our  attention  to  the  other  side  of  the  picture  and 
see  v^hat  the  French  people  have  done  to  re-construct,  or  as 
many  prefer  to  say,  reconstitute,  this  devastated  section  of 
their  country.  Here  v^e  have  a  flood  of  sunshine  thrown  across 
the  scene.  With  rare  courage,  great  determination  and  by  the 
exercise  of  a  splendid  optimism,  the  scars  of  war  are  slowly 
being  effaced.  As  early  as  February,  191 5,  a  government 
decree  was  issued  providing  for  a  determination  and  valuation 
of  damages  due  to  the  war  and  making  appropriations  for  the 
relief  of  those  who  suffered  such  damages.  Shortly  thereafter 
committees  were  appointed  to  consider  the  best  means  of 
reconstituting  the  dwellings  and  other  buildings  destroyed. 
This  was  in  19 17.  In  this  same  year  the  British  troops  set  on 
foot  agricultural  operations  in  the  liberated  territory.  Every 
British  army  troop  included  an  expert  agriculturist  with  two 
subordinate  officers,  also  specialists,  500  men  and  interpreters. 
The  agricultural  section  worked  by  first  of  all  collecting  var- 
ious metals  with  which  the  ground  was  littered,  such  as  shells 
and  old  tins.    Once  this  work  was  accomplished,  ploughing 


90  ]  BANKERS  TRUST  COMPANY 

operations  were  undertaken  with  special  ploughs  brought 
from  England.  As  the  object  of  the  work  was  to  hand  over 
the  ground  in  the  best  possible  condition  to  its  owners,  sowing 
was  also  undertaken. 

Soldiers  were  posted  to  prevent  troops  from  passing  over 
ground  that  had  been  tilled  or  sown,  and  fences  were  also 
run  up  to  protect  the  growing  crops.  The  work  was  done  in 
close  cooperation  with  British  and  French  agricultural  ex- 
perts and  a  single  army  in  the  period  between  March  lo  and 
May  5,  1917,  supplied  41,000  days'  work  for  men  and  2,000 
days  of  horse  labor.  Another  army  used  100  threshing  ma- 
chines which  burned  20,000  tons  of  coal.  Threshing  was  con- 
ducted by  agreement  with  the  farmers  concerned,  the  English 
being  paid  by  receiving  from  30  to  50  per  cent,  of  the  straw. 
The  English  soldiers  also  did  useful  work  in  collecting  and 
repairing  French  agricultural  machinery  that  the  Germans 
did  not  have  time  completely  to  destroy. 

In  this  year  also  the  United  States  Forestry  Service  co- 
operated with  the  French  authorities  in  putting  into  effect 
plans  to  restore  the  forests  that  had  been  destroyed  by  the 
Germans. 

The  French  authorities  took  active  measures  in  this  and 
subsequent  years  to  bring  about  the  rehabilitation  of  roads, 
buildings,  industrial  establishments  and  farming  lands  as 
rapidly  as  military  operations  would  permit. 

The  Credit  National  Organized 

In  order  to  facilitate  the  reimbursement  of  those  who  suf- 
fered material  damage  from  enemy  action  during  the  war,  a 
company  was  organized  under  the  terms  of  a  law  promulgated 
October  10,  1919,  known  as  the  "Credit  National  Pour 
Faciliter  La   Reparation   des   Dommages   Causes   Par  La 


FRENCH  PUBLIC  FINANCE  [  9 1 

Guerre"  (The  Credit  National  to  facilitate  the  making  good 
of  the  damages  caused  by  the  war).  This  company  which  has 
a  capital  of  loo  million  francs  was  formed  by  a  group  of  the 
most  important  French  banks.  The  declared  objects  of  the 
company  were  to  pay  in  cash  the  whole  or  part  of  the  com- 
pensation due  to  those  who  had  suffered  damage  from  the 
war,  to  arrange  for  the  payment  of  interest  in  respect  of 
such  advances  and  to  receive  on  behalf  of  the  state  for  a 
period  of  25  years  the  whole  or  a  part  of  the  money  to  be 
employed  for  such  purposes. 

The  capital  required  to  pay  compensations  for  war  dam- 
ages is  raised  by  the  issue  of  interest  bearing  obligations 
taking  the  form  of  premium  bonds  which  are  so  popular  with 
French  investors.  The  payment  of  the  interest,  redemption 
and  premium  charges  involved  is  guaranteed  by  the  state 
which  includes  the  necessary  money  in  each  year's  budget. 
In  this  way  the  market  for  the  rente  and  other  public  funds 
is  preserved  from  prejudice.  An  especially  interesting  feature 
of  the  system  is  that,  anticipating  the  probability  that  the 
new  company  will  make  an  effort  to  attract  foreign  investors 
by  issuing  bonds  in  other  than  French  currency  denomina- 
tions, the  law  enacts  that  the  treasury  shall  assume  the  pay- 
ment in  connection  with  these  bonds  of  all  expenses  due  to 
the  rate  of  exchange  and  other  charges,  including  even  any 
taxes  that  may  be  imposed  on  such  bonds  by  foreign  govern- 
ments, so  that  the  Credit  National  will  be  placed  in  the  same 
position  as  if  it  had  issued  all  its  bonds  in  French  francs.  The 
law  further  authorizes  the  company  to  make  advances  to  a 
maximum  total  of  500  million  francs  ($100  million)  in  the  form 
of  long  term  loans  (for  not  less  than  three  years  and  not  more 
than  ten  years),  "to  facilitate  the  creation,  development  or 
restarting  of  manufacturing  and  commercial  undertakings 


92  J  BANKERS  TRUST  COMPANY 

belonging  to  French  citizens  in  devastated  regions."  The 
whole  scheme  of  the  Credit  National  has  received  hearty 
public  approval.  A  similar  system  was  at  one  time  very  suc- 
cessfully employed  in  connection  with  financing  railway  ex- 
tensions. The  Credit  National  up  to  December,  1921,  had 
issued  eleven  biUion  francs  in  bonds,  and  had  become  a  very 
important  factor  in  solving  the  problem  of  reconstruction. 
It  had  paid  830,000  damage  claims  amounting  to  1,291 
million  francs,  had  paid  256  million  francs  interest  on  war 
damage  claims,  had  made  460,000  cash  advances  totaling,. 
5,300  million  francs  and  had  made  other  loans  for  nearly 
3  billion  francs.  These  payments  aggregated  over  9,800  mil- 
lion, leaving  about  1,200  million  francs  in  hand.  A  new  un- 
limited bond  offering  made  in  the  early  part  of  1922  realized 
an  additional  4,730  million  francs  for  the  purposes  of  the 
company. 

Progress  of  the  Reconstruction  Work 

By  the  end  of  1919,  only  one  year  after  the  signing  of  the 
armistice,  great  progress  had  been  made  with  reconstruction 
work,  expecially  in  putting  the  railroads  back  upon  a  normal 
basis,  55  per  cent,  of  the  factories  destroyed  were  again  in  part 
productive,  30  per  cent,  of  the  550,000  houses  wholly  or 
partially  destroyed  had  been  made  habitable,  25  per  cent,  of 
the  tillable  lands  had  been  made  ready  for  cultivation. 

To  facilitate  the  work  cooperative  societies  were  organized 
in  1920  so  that  small  property  holders  or  business  people 
could  pool  their  resources  for  the  common  good,  the  govern- 
ment also  offered  premiums  for  every  hectare  {7.]^  acres)  of 
wheat  or  rye  cultivated  in  the  devastated  territory. 

By  the  end  of  1920  over  76  per  cent,  of  the  industrial 
establishments  in  the  devastated  regions  had  resumed  work 


FRENCH  PUBLIC  FINANCE  [  93 

while  there  were  about  45  per  cent,  as  many  men  at  work  in 
these  establishments  as  before  the  war  in  1914.  At  the  close 
of  1 92 1  the  liberated  regions  possessed  86  per  cent,  of  their 
pre-war  population,  over  90  per  cent,  of  the  factories  were 
running,  nearly  90  per  cent,  of  the  agricultural  area  was 
restored  and  fit  for  cultivation  and  50  per  cent,  of  the  pre-war 
personnel  was  being  employed.  In  the  month  of  May,  1921, 
M.  Loucheur,  Minister  of  the  Liberated  Regions,  estimated 
that  it  would  cost  from  80  billion  to  100  billion  francs  to 
complete  this  work;  say,  at  seven  cents  per  franc,  5,600  mil- 
lion to  seven  billion  dollars. 

Up  to  January  i,  1922,  the  disbursements  of  the  French 
treasury  for  reconstruction  and  other  operations  chargeable 
against  Germany  aggregated  80  billion  francs.  Of  this  sum 
45  billion  had  been  paid  out  for  reparation  for  damages  to 
property,  29  billion  for  reparation  for  damages  to  persons 
and  6  billion  for  interest  on  the  sums  borrowed  for  these 
expenditures. 

The  figures  of  the  progress  in  reconstruction  already  made 
are  more  eloquent  than  any  words  could  be.  They  are  a 
monument  to  French  ability  to  plan  and  carry  through  diffi- 
cult undertakings,  to  French  industry,  to  French  thrift  and 
to  French  pluck. 

Economic  and  Territorial  Changes,  ^9^3  '^^^  IQ20 
We  may  now  profitably  consider  what  France  has  gained 
as  a  result  of  the  war.   This  is  a  much  more  agreeable  picture 
to  look  upon. 

Alsace-Lorraine:  The  outstanding  event  of  the  bright  side 
of  the  war  is  the  repatriation  of  Alsace  and  Lorraine.  The 
statue  of  Strasbourg  in  the  Place  de  la  Concorde  in  Paris  no 
longer  wears  the  mourning  which  for  nearly  fifty  years  kept 


94  1  BANKERS  TRUST  COMPANY 

constantly  before  all  passers-by  the  wrong  which  France  and 
the  Alsatians  and  Lorrainians  had  suffered  in  1871. 

The  forests  of  Alsace  and  Lorraine  cover  nearly  a  third 
of  the  country  with  hard  woods  and  conifers  which  yield 
annually  a  large  amount  of  lumber.  Then  there  are  very 
important  manufacturing  establishments  of  cotton  goods, 
woolen  goods,  ribbons,  machinery,  ceramics  and  glass. 

Iron  Ore  of  Lorraine:  However,  the  great  wealth  of  the 
recovered  provinces  is  underground.  The  iron  ore  of  Lor- 
raine, known  to  the  trade  as  Minette  ore,  when  joined  with 
the  balance  of  this  field,  chiefly  in  what  before  the  war  was 
designated  as  French  Lorraine,  swings  to  France  the  control 
of  the  largest  body  of  iron  ore  in  Europe.  She  now  has  re- 
serves of  4,830  million  tons  of  this  ore,  of  which  1,830  million 
came  to  her  with  repatriated  Lorraine.  France  thus  becomes 
second  only  to  the  United  States  as  a  potential  world  pro- 
ducer of  iron  ore  and  far  in  the  lead  in  Europe.  According 
to  the  United  States  Geological  Survey,  prior  to  the  war  the 
annual  world  output  of  iron  ore  was  upwards  of  177  million 
tons  of  which  our  United  States  produced  36  per  cent.;  Ger- 
many and  Luxembourg,  20  per  cent.;  France,  12  per  cent,  and 
Great  Britain,  9  per  cent. 

By  the  repatriation  of  Lorraine  and  the  transfer  of  Luxem- 
bourg from  the  German  customs  union  to  the  Belgian  cus- 
toms union  the  same  tonnage  would  be  now  apportioned, 
over  233^  per  cent,  to  France,  4.2  per  cent,  to  Belgium  and 
Luxembourg,  with  only  4.2  per  cent,  remaining  to  Germany; 
— the  other  countries  remaining  as  before. 

Potash  of  Alsace:  Then,  through  the  acquisition  with 
Alsace  of  the  potash  mines  of  that  province,  the  German 
monopoly  of  potash  is  destroyed.  Up  to  within  a  few  years 
Germany  was  supposed  to  possess  in  her  Prussian  mines  the 


FRENCH  PUBLIC  FINANCE  [  95 

world's  supply  of  merchantable  potash.  Some  twelve  years 
ago  deposits  of  potash  salts  were  discovered  in  the  forest  of 
Monnenbruch,  nearly  at  the  foot  of  Hartmannsweiler-Kopf. 
The  first  shaft  for  their  extraction  was  completed  in  1909. 
Since  then  the  number  of  mines  has  increased  to  over  twelve. 
Investigations  indicate  that  the  deposits  cover  an  area  of 
seven  square  miles  and  range  in  thickness  from  six  to  thirty 
feet.  How  far  the  field  extends  and  what  is  its  productive 
capacity  is  not  known  with  any  precision,  but  the  area  already 
developed,  less  than  one-tenth  of  the  estimated  whole,  has 
been  judged  to  contain  300  million  tons  of  pure  potash,  valued 
at  upwards  of  3,500  million  dollars. 

Public  Wealth  of  Alsace-Lorraine:  It  is  difficult  to  value 
the  public  wealth  of  the  repatriated  provinces,  but  probably 
an  estimate  of  20  billion  gold  francs,  say  4  billion  dollars, 
would  be  conservative. 

The  Saar  Coal  Basin:  Besides  the  iron  ore  and  the  potash 
of  Alsace-Lorraine,  France,  under  the  terms  of  the  treaty 
of  peace,  becomes  for  fifteen  years  the  dominating  factor  in 
the  Saar  Basin  which  in  1913  produced  1,370,000  tons  of 
pig  iron,  over  2,000,000  tons  of  steel  and  over  1 2,000,000  tons 
of  coal.  At  the  end  of  this  time  the  people  are  to  determine 
whether  they  desire  to  return  under  German  rule  or  to  remain 
permanently  French.  The  coal  reserves  of  the  Saar  are  esti- 
mated to  be  over  16,500  million  tons.  Unfortunately  this 
coal  is  not  suitable  for  coking,  thus  leaving  France  still 
dependent  to  a  considerable  extent  upon  other  nations  for 
her  coke.  This  situation  will  be  largely  remedied  when  the 
mines  in  the  north  of  France  which  were  sabotaged  by  the 
Germans  are  restored.  The  control  of  the  Saar  Basin  doubles 
the  coal  reserves  of  France  for  the  next  fifteen  years  at  least. 

Colonies:  Among  the  gains  of  France  due  to  the  war  we 


FRANCE 
Physical  and  Economic  Data 

Pre- War  vs.  Post-War 
(coo  omitted — except  in  "area") 


Area,  actual  figures  (Eng 
glish  square  miles)     .    . 

Colonies  and  Dependencies 
Population — Home .    .    . 

Colonies  and  Dependencies 

(Metric  Tons) 

Coal  Reserves  &  .... 

Iron  Ore  Reserves  b  .   . 

Potash  Reserves  b  .    .    . 

Values  francs  b  .    .    .    . 
Mineral  Output 

Coal 

Iron  Ore      

Pig  Iron  ....... 

Steel     

Potash 

Beet  Sugar  Output    .    . 
Agricultural  Output 

Wheat 

Rye      ...    

Barley 

Oats 

Potatoes      

Sugar  Beets 

Live  Stock  (Head) 

Horses 

Cattle 

Sheep 

Swine 

Wine   Output    (gallons) 
Foreign  Trade 

(Metric  Tons) 

Exports 

Imports 

Total  Foreign  Trade.    . 
Shipping — Gross  Tonnage 


^913 


207,054 

,538,543 
39,601 
40,986 

17,583 
3,000 


40,800 

22,000 

5,200 

4,419 

973 

8,692 
1,271 

1,043 

5,182 

12,586 

2,050 

3,222 

14,787 
16,131 

7,035 
1,161 


22,074 

44,220 

66,294 

2,700 


1921 


212,659 

5,119,138 

a  39,209 

53,582 

36,000 

4,830 

300 

3,500 

28,900 

14,106 

3,200 

2,600 

600 

305 

8,784 

1,130 

823 

3,559 
8,225 

314 

d  2,635 
^13,217 
d  9,406 
d  4,942 
d  1,189 


16,001 
37,974 
53,975 

3,138 


Loss  or 
Gain 


5,605 
580,595 

12,596 

18,417 

1,830 

300 

3,500 

c  II, goo 

7,894 

2,000 

1,819 

600 

668 

92 

141 

220 

1,623 

4,361 

1,736 

587 

1,570 

6,725 

2,093 

28 


6,073 
6,246 

12,319 
438 


a  192 1  Census  excluding  Alsace-Lorraine 
Alsace-Lorraine 


37,500,000 
1,709,000 


Total      39,209,000 

6  000,000  omitted. 

c  When  mines  in  north  are  rehabilitated  output  should  exceed  pre-war  because  of 
increase  in  reserves.  Output  in  1921  from  the  northern  mines  (included  in  our  total) 
was  5,365.000  tons,  comparing  with  2,447,000  in  1920  and  18,662,000  in  1913. 

d  1920. 


96] 


FRENCH  PUBLIC  FINANCE  [  97 

have  an  addition  to  her  colonial  possessions  of  over  500,000 
square  miles  of  territory,  chiefly  in  Africa,  and  of  some  twelve 
and  a  half  million  people.  By  some  this  added  responsibility 
for  undeveloped  lands  and  millions  of  aborigines  may  be  re- 
garded as  the  assumption  of  an  enlarged  burden,  but  looking 
to  the  future  the  rounding  out  of  her  territorial  possessions  in 
the  dark  continent  may  prove  to  be  of  great  value  to  France. 

The  National  Wealth — How  Affected:  It  is  very  difficult 
to  weigh  against  each  other  the  gains  and  the  losses  of  the 
war  in  order  to  determine  the  net  effect  upon  the  national 
wealth.  However,  we  have  made  an  attempt  impartially 
to  determine  this  figure  and,  while  we  are  not  by  any  means 
in  a  position  to  give  an  unqualified  conclusion,  we  believe 
that  it  is  safe  to  say  that  the  public  wealth  of  France  is  today 
substantially  as  great  as  before  the  war,  say  about  300  billion 
gold  francs,  equivalent  to  about  60  billion  dollars. 

The  table  on  the  preceding  page  gives  in  statistical  form 
the  data  upon  which  thf  foregoing  remarks  are  based  also 
some  additional  interesting  economic  data. 


Chapter  IX 
Reparation 

TN  view  of  the  highly  controversial  nature  of  the  reparations 
-■'  problem  we  have  confined  the  statements  in  this  chapter 
to  a  recital  of  facts,  without  comment  thereon. 

Mr.  Baruch  in  his  book  on  "The  Making  of  the  Repara- 
tion and  Economic  Sections  of  the  Treaty"  tells  us  that 
after  prolonged  and  earnest  debate  on  the  part  of  the 
delegates  to  the  peace  conference,  an  agreement  was  reached 
on  the  fundamental  principle  that  "Germany's  reparation 
obligations  were  to  be  determined  in  accordance  with  a  fair 
construction  of  the  allies'  pre-armistice  declaration  and  that 
such  construction  excluded  imposing  upon  Germany  the  'costs 
of  the  war'  but  was  limited  to  what  may  be  called  actual 
damage."  Therefore  it  is  important  in  considering  the  ques- 
tion of  reparations  clearly  to  bear  in  mind  the  fact  that  they 
do  not  include  war  costs. 

The  next  question  before  the  delegates  was  to  determine 
what  should  be  included  under  the  term  "reparations."  The 
decision  arrived  at  may  be  briefly  summarized  as  follows: 

Damage  to  civilians,  (a)  those  injured,  and  surviving 
dependents  of  those  killed  due  to  "all  operations  of  war  by 
the  two  groups  of  belligerents  wherever  arising"  and  (b)  to 
the  victims  of  German  cruelty,  or  the  surviving  dependents 
of  such  victims. 

Damage  caused  by  maltreatment  of  prisoners  of  war. 

Reimbursement  for  pensions  and  compensation  in  the 
nature  of  pensions  to  naval  and  military  victims  of  war 
(including  members  of  the  air  force),  and  to  their  dependents. 

The  cost  of  assistance  to  prisoners  of  war  or  to  their 
families  or  dependents. 

98] 


FRENCH  PUBLIC  FINANCE  [  99 

Allowances  to  families  and  dependents  of  mobilized  per- 
sons. 

Damage  caused  to  civilians  by  being  forced  by  Germany 
or  her  allies  to  labor  without  just  remuneration. 

Damage  in  respect  of  all  property  carried  off,  seized, 
injured  or  destroyed  by  acts  of  Germany  or  her  allies. 

Damage  in  the  form  of  levies,  fines  and  other  similar  exac- 
tions imposed  by  Germany  or  her  allies  upon  the  civilian  pop- 
ulation. 

In  resolving  these  principles  of  settlement  into  definite 
terms  of  payment,  Mr.  Baruch  states  that  "the  problem  pre- 
sented itself  in  three  main  aspects;  first,  restitution  of  objects 
removed  but  still  in  being;  second,  reparation  in  kind  of  prop- 
erty destroyed;  third,  financial  restitution." 

It  was  decided  to  defer  the  determination  of  the  total 
amount  to  be  paid  by  Germany  until  May  i,  1921.  The 
power  to  fix  this  amount  was  vested  in  the  reparation  com- 
mission, to  which  commission  the  peace  conference  sought 
to  give  those  powers  which  were  recognized  as  essential  to 
an  intelligent  solution  and  administration  of  the  reparation 
problem. 

The  Reparation  Commission 

The  reparation  commission  was  created  by  the  terms  of 
the  peace  treaties.  Provision  is  made  for  delegates  to  be 
nominated  respectively  by  the  United  States,  Great  Britain, 
France,  Italy,  Japan,  Belgium  and  the  Serb-Croat-Slovene 
State.  Each  state  also  is  entitled  to  appoint  an  assistant  del- 
egate who  will  take  his  place  only  in  case  of  illness  or  necessary 
absence  of  the  delegate  from  his  nation. 

On  no  occasion  are  the  delegates  of  more  than  five  of  the 
powers  represented  entitled  to  take  part  in  the  proceedings 


lOO  ]  BANKERS  TRUST  COMPANY 

and  to  record  their  votes.  The  delegates  of  the  United  States, 
Great  Britain,  France  and  Italy  have  this  right  on  all  occa- 
sions. The  delegate  of  Belgium  has  the  right  except  when 
necessary  to  make  room  for  the  delegate  of  Japan  or  of  the 
Serb-Croat-Slovene  State.  These  latter  delegates  have  the 
right  to  act  when  matters  directly  affecting  their  interests  are 
under  consideration. 

The  United  States  has  never  appointed  a  delegate,  but 
has  an  unofficial  observer  attached  to  the  commission. 

The  permanent  office  of  the  commission  is  in  Paris. 

The  proceedings  of  the  commission  are  private,  but  "com- 
muniques" are  issued  from  time  to  time  which  make  public 
various  decisions  taken  by  the  commission  as  well  as  giving 
information  relating  to  the  approximate  amounts  of  payments 
and  deliveries  made  by  Germany  on  reparation  account. 

The  treaty  confers  very  broad  powers  upon  the  commis- 
sion. It  is  appointed  agent  of  all  the  allied  and  associated 
powers  for  the  purpose  of  collecting  reparations,  and  is  given 
general  control  of  the  entire  reparation  problem.  It  is  author- 
ized to  fix  definitely  the  amount  for  which  Germany  is  liable 
and  its  decision  in  regard  to  the  interpretation  of  the  repara- 
tion provisions  of  the  treaty  is  conclusive. 

Reparation  Payments  Stipulated  in  Peace  Treaty 

In  general.  The  treaty  provides  that  Germany  shall  make 
compensation  for  all  damage  done  to  the  civilian  population 
of  the  allied  and  associated  powers  and  to  their  property  dur- 
ing the  period  of  belligerency. 

To  Belgium.  In  addition  to  her  share  of  the  general  fund, 
full  reimbursement  is  to  be  made  of  all  sums  borrowed  by 
Belgium  from  the  allied  or  associated  powers  up  to  November 
II,  191 8,  with  interest  at  the  rate  of  5  per  cent,  per  annum. 


FRENCH  PUBLIC  FINANCE  [  lOI 

This  settlement  is  to  be  made  by  a  special  issue  of  bonds  of  the 
German  government,  payable  in  gold  marks  on  or  before  May 
I,  1926.  An  arbitration  has  settled  that  the  rates  of  exchange 
current  on  November  11,  1918,  shall  be  used  in  determining 
the  amount  of  this  settlement. 

Reparation  in  Kind.  Germany  agrees  to  the  direct  appli- 
cation of  her  economic  resources  to  reparation  of  merchant 
shipping,  to  physical  restoration,  to  deliveries  of  coal  and  its 
derivatives,  dyestufFs  and  other  chemical  products.  It  is 
agreed  that  the  value  of  these  payments  in  kind  shall  be 
credited  at  their  money  value  to  the  amount  finally  assessed 
against  Germany. 

Restitution  of  Stolen  Articles.  In  addition  to  payments  for 
damages  suffered  by  the  invaded  country,  Germany  is  re- 
quired to  return  property  stolen. 

Costs  of  the  Armies  of  Occupation.  Germany  is  required  to 
pay  the  total  cost  of  all  armies  of  the  allied  and  associated 
governments  in  occupied  German  territory,  such  payments  to 
be  made  in  marks  at  the  current  or  agreed  rate  of  exchange. 

Relative  Priority  of  Treaty  Charges 

The  priority  charges  established  by  the  treaty,  subject  to 

the  quahfications  noted  in  paragraph  "e,"  were  as  follows: 

"(a)   The  cost  of  the  armies  of  occupation  as  defined  under  article  249 
during  the  armistice  and  its  extensions; 

(b)  The  cost  of  any  armies  of  occupation  as  defined  under  article  249 
after  the  coming  into  force  of  the  present  treaty; 

(c)  The  cost  of  reparation  rising  out  of  the  present  treaty  or  any 
treaties  or  conventions  supplementary  thereto; 

(d)  The  cost  of  all  other  obligations  incumbent  on  Germany  under  the 
armistice  conventions  or  under  this  treaty  or  any  treaties  or 
conventions  supplementary  thereto. 

(e)  The  payment  for  such  supplies  of  food  and  raw  material  for  Ger- 
many and  such  other  payments  as  may  be  judged  by  the  allied 


I62  ]  BANKERS  TRUST  COMPANY 

and  associated  powers  to  be  essential  to  enable  Ciermany  to  meet 
her  obligations  in  respect  of  reparation  will  have  priority  to  the 
extent  and  upon  the  conditions  which  have  been  or  may  be  deter- 
mined by  the  governments  of  the  said  powers." 

Debt  and  Public  Property  of  Ceded  Territory 
to  be  Assumed  by  New  Owners 

The  powers  to  v^^hlch  German  territory  is  ceded  by  the 
terms  of  the  treaty  are  obligated  to  assume  a  portion  of  the 
pre-war  debt  of  Germany  and  to  reimburse  Germany  for  pub- 
lic property  located  therein.  The  method  of  settlement  is 
left  to  the  reparation  commission.  Exception  is  made  in  the 
case  of  Alsace-Lorraine,  because  Germany  assumed  no  part 
of  the  French  debt  when  she  annexed  Alsace  and  Lorraine  in 
1 871.  There  is  also  a  partial  exception  in  the  case  of  Poland, 
and  Belgium  is  not  required  to  make  any  payment  on  account 
of  public  property  in  German  territory  ceded  to  her. 

Mode  of  Settlements 

Any  monetary  obligation  due  by  Germany  arising  out  of 
the  treaty  and  expressed  in  terms  of  gold  marks  is  made  pay- 
able at  the  option  of  the  creditors  in  pounds  sterling  payable 
in  London;  gold  dollars  of  the  United  States  of  America  pay- 
able in  New  York;  gold  francs  payable  in  Paris;  or  gold  lire 
payable  in  Rome. 

For  the  purpose  of  this  article  the  gold  coins  above  desig- 
nated are  defined  as  being  of  the  weight  and  fineness  of  gold 
as  enacted  by  law  on  January  i,  1914. 

In  practise  such  of  the  reparation  payments  as  are  made 
in  cash  are  provided  in  foreign  currencies  and  are  credited 
at  current  rates  of  exchange  to  the  German  indebtedness  in 
terms  of  gold  marks.  Deliveries  in  kind  which  are  not  valued 
directly  in  gold  marks  are  credited  in  a  similar  manner. 


FRENCH  PUBLIC  FINANCE  [  IO3 

The  Revised  Agreement  of  May  ^  ig2l 

Pending  the  determination  of  the  total  payment  to  be 
made  and  the  method  of  payment  and  in  order  to  enable 
the  allied  powers  to  proceed  at  once  to  the  restoration  of 
their  industrial  and  economic  life,  Germany  was  required  by 
•the  treaty  terms  to  surrender  by  May  i,  1 921,  values  equiva- 
lent to  about  five  billion  dollars  (20  billion  gold  marks). 

As  that  dat^  approached  a  controversy  arose  as  to  what 
payments  in  kind  made  up  to  that  date  should  be  regarded 
as  being  in  fulfillment  of  this  obligation.  While  Germany 
claimed  to  have  paid  in  full  the  amount  due  to  that  date, 
the  reparation  commission  estimated  that  she  had  paid  only 
about  two-fifths  of  that  sum.  This  question  has  not  yet  been 
definitely  determined  by  the  commission. 

However,  the  great  question  to  be  decided  was  that  of  the 
gross  amount  to  be  paid  and  when  and  how  payments  should 
be  made. 

After  prolonged  and  bitter  controversy  between  Germany 
on  the  one  hand  and  the  allied  premiers  on  the  other,  finally 
the  supreme  council  on  May  6,  1921,  sent  an  ultimatum  to 
the  German  government  requiring  it  categorically  to  declare 
within  a  period  of  six  days  its  resolve  to  carry  out  without 
reserve  or  condition  certain  specified  obligations. 

The  Amount  to  he  Paid.  The  financial  obligations  as  de- 
fined by  the  reparation  commission  were: 

To  pay  132,000  million  gold  marks,  plus  the  amount  of 
the  Belgian  debt  to  the  allies  (estimated  at  upwards  of  four 
and  a  half  billion  gold  marks)  and  less: 

(a)  the  amount  already  paid  on  account  of  reparation, 

(b)  sums  which  might  be  credited  to  Germany  in  future  in  respect  of 
state  properties  in  ceded  territory,  etc.,  and 


I04  J  BANKERS  TRUST  COMPANY 

(c)  sums  received  from  other  enemy  or  ex-enemy  powers  in  respect  of 
which  the  commission  might  decide  that  credit  should  be  given  to 
Germany. 

Bonds  to  be  Issued,  In  order  to  enable  Germany  to  meet 
her  liabilities  and  to  adapt  her  payments  according  to  her 
capacity,  she  was  required  by  the  ultimatum  to  create  and 
deliver  to  the  commission,  in  substitution  for  bonds  already 
delivered  or  deliverable  under  the  peace  treaty,  certain  bonds 
as  under — 

"Series  A"  bonds,  for  an  amount  of  12,000  million  gold 
marks,  to  be  created  and  delivered  at  the  latest  on  July  i,  192 1. 
An  annual  payment  is  required  to  be  made  from  funds  to  be 
provided  by  Germany  in  each  year  from  May  i,  192 1,  equal  in 
amount  to  6  per  cent,  of  the  normal  value  of  the  issued  bonds, 
out  of  which  there  is  to  be  paid  interest  at  5  per  cent,  per 
annum,  payable  half  yearly  on  the  bonds  outstanding  at  any 
time,  and  the  balance  to  a  sinking  fund  for  the  redemption  of 
the  bonds  by  annual  drawings  at  par. 

"Series  B"  bonds,  for  38,000  million  gold  marks,  to  be 
created  and  delivered  at  latest  on  November  i,  1921,  interest 
(running  from  November  i,  1921)  and  sinking  fund  provisions 
as  in  "Series  A." 

"Series  C"  bonds,  for  82,000  million  gold  marks,  to  be 
created  and  delivered  at  latest  on  November  i,  192 1.  These 
bonds  to  be  issued  by  the  commission  as  and  when  it  is  satisfied 
that  Germany  can  provide  for  the  payment  of  interest  and 
•  sinking  fund  on  such  bonds  at  the  rates  fixed  for  "Series  A" 
and  "Series  B." 

The  above  mentioned  bonds  were  to  be  in  such  form  and 
denominations  as  the  reparation  commission  should  pre- 
scribe. They  are  free  of  all  German  taxes  and  charges  of 
every  description,  present  or  future,  and  are  secured  on  the 
whole  of  the  assets  and  revenues  of  the  German  empire  and 
German  states.  The  service  of  the  bonds  is  a  first,  second  and 
third  charge  respectively  on  these  assets  and  revenues. 

J nnual  Charge  and  How  Provided  For.  In  order  to  provide 
for  the  interest  and  sinking  fund  charges  on  the  issued  bonds 


FRENCH  PUBLIC  FINANCE  [  IO5 

Germany  is  required  to  make  the  following  payments  each 

year: 

(i)    2,000  million  gold  marks, 

(2)  (a)  A  sum  equivalent  to  25  per  cent,  of  the  value  of  her  exports 

in  each  period  of  12  months  beginning  May  i,  1921,  as  deter- 
mined by  the  commission,  or 
(6)  Alternatively,  an  equivalent  amount  as  fixed  on  any  other  in- 
dex proposed  by  Germany  and  accepted  by  the  commission. 

(3)  A  further  sum  equivalent  to  i  per  cent,  of  the  value  of  her  exports 
as  above  defined  or  alternatively  an  equivalent  amount  fixed  as 
provided  in  (&)  above. 

When  Germany  shall  have  discharged  her  financial  obliga- 
tions, other  than  her  liability  in  respect  of  the  outstanding 
bonds  of  "Series  C,"  the  amount  to  be  paid  in  each  year  under 
this  paragraph  is  to  be  reduced  to  the  amount  required  in  that 
year  to  meet  the  5  per  cent,  interest  and  the  one  per  cent, 
sinking  fund  on  the  bonds  then  outstanding. 

In  addition  to  the  cash  payments  Germany's  obligation 
under  the  treaty  of  peace  still  held  good  to  complete  restitu- 
tion of  war  loot  or  of  similar  articles  in  lieu  thereof;  to  permit 
the  allies  to  retain  seized  German  ship  tonnage  upon  con- 
dition that  payment  be  made  therefor  for  reparation  account 
up  to  the  fair  value  of  the  ships  retained  in  excess  of  those 
apportioned  to  replace  war  losses;  to  deliver  to  France  and 
Belgium  supplies  of  coal  to  offset  the  diminished  product  from 
their  mines  because  of  German  war  sabotage,  and  to  give 
France,  Belgium  and  Italy  preferential  rights  to  purchase  any 
surplus  coal  which  she  may  have  for  sale. 

Payments  Made  in  IQ21.  Germany  was  to  payj^by 
May  31,  1921,  one  billion  gold  marks  in  gold  or  approved 
foreign  bills  or  in  drafts  at  three  months  on  the  German 
treasury,  endorsed  by  approved  German  banks,  these  pay- 
ments to  be  treated  as  the  instalments  due  in  1921  of  the 
annual  sum  of  2,000  million  gold  marks  previously  mentioned. 


I06  ]  BANKERS  TRUST  COMPANY 

This  pa3mient  was  duly  made;  120  million  marks  in  cash  and 
the  balance  in  three  months'  notes  endorsed  by  the  Reichs- 
bank  and  other  German  banks.  These  notes  were  paid  at 
maturity.  Some  payments  were  ma  de  in  New  York  and  some 
in  London. 

The  first  quarterly  payment  to  be  determined  by  the  value 
of  Germany's  exports  became  due  on  November  15,  1921. 
The  amount  due  proved  to  be  about  300  million  gold  marks. 
Cash  payment  was  waived  by  the  reparation  commission  in 
view  of  the  fact  that  the  values  of  coal,  ships,  et  cetera 
delivered  during  the  year  had  already  more  than  offset  the 
amount  due  in  November. 

Total  Payments  to  December  J/,  ig2l 

An  official  statement  by  the  reparation  commission 
places  the  total  value  of  the  payments  made  by  Germany  in 
cash  and  in  kind  and  of  the  cessions  of  state  property  covering 
the  period  from  Armistice  Day  (November  11,  1918)  to 
December  31,  1921,  at  6,487,856,000  gold  marks  as  per  the 
following  statement: 

I.    GOLD  AND  FOREIGN  CURRENCIES 

Gold  Marks 
Direct  payments  made  by  Germany  to  Decem- 
ber 31,  1921     1,041,419,000 

Receipts  from  other  sources  on  German  account: 

1.  Payment  by  Denmark  for  cession  of 

part  of  Schleswig-Holstein      .    .  65,000,000 

2.  Destroyed  War  Material  Sold   .    .    .  40,960,000 

3.  Sundry  items 657,000 

Proceeds  of  Reparation  Recovery  Act    ....  36,136,000 

1,184,172,000 
II.     DELIVERIES  IN  KIND 
Supplied  to  the  Allied  and  Associated  Powers  .    2,760,250,000 
Sold  to  Luxemburg,  to  the  Textile  Alliance  of 

the  United  States,  etc 39,092,000 

Total  liquid  receipts 3.983.5  HiOOO 


FRENCH  PUBLIC  FINANCE  [  IO7 

III.     CESSIONS  OF  STATE  PROPERTIES  IN 
CEDED  TERRITORIES 

Estimated  value  (excluding  Schleswig-Holstein 
properties  shown  above,  the  value  of  which 

has  been  realized  in  cash) 2>504»343tOOO 

Grand  Total 6,487,856,000 

The  Paris  correspondent  of  The  London  Economist  from 
which  paper  the  above  statement  is  copied  states  "that  it 
should  be  remembered  that  Germany  has  made  other  payments 
in  addition  to  those  included  in  the  above  table.  These  include 
payments  both  in  cash  and  kind  in  connection  with  the 
armies  of  occupation,  the  various  inter-allied  commissions, 
etc.,  which  may  be  calculated  as  sufficiently  important  to 
bring  her  total  expenditure  in  respect  of  allied  claims,  down 
to  the  end  of  1921,  to  a  grand  total  of  11,400,000,000  gold 
marks." 

The  disposition  of  these  payments  is  said  to  have  been 
as  follows: 

Gold  Marks 
Payments  made  to  Germsmy  to  enable  her  to 

purchase  food  supplies  and  raw  materials  .    3,800,000,000 
Reimbursement  of  advances  made  by  certain 
allies  to  facilitate  delivery  of  coal  under 

Spa  agreement,  about 390,000,000 

Pay  of  troops  in  armies  of  occupation  (including 

American  army)  down  to  May  i,  192 1  .    .    3,186,000,000 
Cost  of  cantonments,  etc.,  for  armies  of  occu- 
pation   1,080,000,000 

Payment  of  cost  of  inter-allied  commissions  to 

May  I,  1921 110,000,000 

Balance 2,834,000,000 

11,400,000,000 

However,  the  balance  of  2,834  niillion  was  not  an  available 
balance  as  over  2,500  million  gold  marks  included  in  the 
payments  (see  previous  table)  represents  state  property  in 
ceded  territory  which  had  not  yet  been  realized  in  cash.  Then 


I08  ]  BANKERS  TRUST  COMPANY 

there  is  the  cost  of  the  allied  armies  since  May  i,  1921,  which 
must  be  taken  care  of.  Thus,  as  late  as  April  i,  1922,  there 
was  no  money  as  yet  in  sight  for  making  actual  reparation 
payments. 

Payments  Required  Subsequent  to  ig2I 

In  1922  and  subsequent  years  the  payments  due  under 
the  May,  1921,  settlement  were  to  be  as  follows: — 

Cash  Payments^  500  million  gold  marks  each  January  15, 
April  15,  July  15  and  October  15;  say  two  billion  gold  marks 
yearly; 

Payments  determined  by  exports  values,  quarterly,  Feb- 
ruary 15,  May  15,  August  15  and  November  15.  Some  esti- 
mates of  these  payments  were  that  they  would  amount  to  at 
least  300  million  gold  marks,  each,  or,  per  annum,  to  1,200 
million  gold  marks.   Other  estimates  were  much  lower. 

Total  Payments.  If  the  higher  estimates  are  realized  the 
payments  in  future  years  will  aggregate  upwards  of  the  three 
billion  gold  marks  required  to  meet  the  interest  and  sinking 
fund  payments  required  for  bond  issues  "Series  A"  and 
"Series  B"  and  leave  a  substantial  surplus  for  "Series  C." 
On  the  other  hand,  if  the  lower  estimates  prove  to  be  right 
the  payments  may  fall  short  of  the  full  amount  required  for 
'Series  B." 

Revised  Programme  for  ig22.  The  schedule  of  payments 
for  1922  has  been  reduced  by  the  reparation  commission  so 
that  the  total  amount  required  will  be  2,170,000,000  gold 
marks  or  830,000,000  less  than  the  amount  required  for  full 
interest  and  amortization  of  bonds  of  Series  A  and  Series  B. 
The  commission  has  fixed  the  cash  payment  for  the  year  1922 
at  720,000,000  gold  marks  and  payments  in  kind  at  1,450,- 
000,000  gold  marks.    Up  to  the  time  of  this  announcement  the 


FRENCH  PUBLIC  FINANCE  [  IO9 

commission  had  been  allowing  Germany  to  pay  31,000,000 
gold  marks  each  ten  days.  Under  this  arrangement  282,000,- 
000  gold  marks  had  been  paid.  For  the  balance  of  the  year 
the  commission  stipulated  for  an  installment  of  18,000,000 
gold  marks  to  be  paid  on  April  15th;  from  May  15th  to 
October  15th,  inclusive,  monthly  payments  of  50,000,000 
gold  marks  were  required;  while  60,000,000  gold  marks  were 
required  to  be  paid  on  November  15  and  December  15 
respectively.  As  a  condition  for  these  concessions  the  com- 
mission insisted  that  provision  should  be  made  for  revenue 
from  additional  taxation,  that  expenditures  should  be  reduced 
and  that  a  scheme  should  be  adopted  of  regular  internal 
loans  to  meet  deficits,  that  a  plan  should  be  devised  for  raising 
a  foreign  loan,  a  scheme  adopted  for  stopping  the  exportation 
of  German  capital  and,  if  possible,  to  bring  back  that  already 
exported,  and  for  complete  independence  of  the  Reichsbank 
of  government  control.  The  commission  also  stipulated  for 
the  publication  of  full  and  regular  statistics  with  a  view  to 
assisting  the  execution  of  the  peace  treaty. 

Disposition  of  Payments 

The  cash  payments  as  made  by  Germany  go  directly  to 
the  reparation  commission.  They  reach  the  allies  only  in 
the  form  of  interest  upon  and  amortization  of  the  German 
gold  bonds  attributed  to  them.  Since  interest  and  sinking 
fund  payments  upon  these  bonds  are  due  half  yearly,  the 
commission  will  pay  the  allies  holding  "Series  A"  and 
"Series  B"  bonds — the  third  series  must  be  left  out  of  account 
for  the  present — the  following  sums:  on  account  of  "Series 
A"  bonds,  360  million  marks  each  May  and  November  and 
on  account  of  "Series  B"  bonds  1,140  million  marks  each 
May  and  November.    Thus  these  payments  will  call  for 


no]  BANKERS  TRUST  COMPANY 

three  billion  gold  marks  annually.  If  the  amounts  received 
for  disbursement  exceed  this  sum,  then  a  portion  of  "  Series 
C"  bonds  will  be  issued,  and  the  surplus  receipts  used  to 
make  payments  thereon.  On  the  other  hand  if  the  receipts 
fall  below  the  three  billion  gold  marks,  a  corresponding  reduc- 
tion will  have  to  be  made  in  the  payments  on  "Series  B" 
bonds. 

Guarantees  and  the  Guarantees  Committee 

By  the  terms  of  the  peace  treaty  the  reparation  commis- 
sion is  required  periodically  to  estimate  Germany's  capacity 
to  pay.  The  treaty  reads  (Annex  II,  12,  b.)  "the  commission 
shall  examine  the  German  system  of  taxation,  first,  to  the 
end  that  the  sums  for  reparation  which  Germany  is  required 
to  pay  shall  become  a  charge  upon  all  of  her  revenues  prior 
to  that  for  the  service  or  discharge  of  any  domestic  loan,  and 
secondly,  so  as  to  satisfy  itself  that,  in  general,  the  German 
scheme  of  taxation  is  fully  as  heavy  proportionately  as  that 
of  any  of  the  powers  represented  on  the  commission." 

By  the  terms  of  the  May  1921  agreement  the  export 
tax  is  to  be  the  special  care  of  a  committee  of  the  repara- 
tion commission,  to  be  called  the  guarantees  committee, 
sitting  in  Paris  or  Berlin,  as  may  be  advisable.  Its  work 
is  highly  important  and  delicate,  since,  while  forbidden  to 
interfere  with  the  internal  administrative  affairs  of  Germany, 
it  is  required  to  see  that  the  export  valuations  are  correct 
and  that  the  yield  of  the  tax  is  not  injuriously  affected  by 
legislative  or  administrative  measures;  and  to  pass  on  other 
sources  of  revenue  which  Germany  may  propose  to  substitute 
for  the  export  tax,  in  whole  or  in  part. 

The  scheme  of  the  German  government  is  to  repay  the 
exporter  the  26  per  cent,  which  will  be  charged  on  passage  of 


FRENCH  PUBLIC  FINANCE  [ill 

his  goods  out  of  Germany,  so  that  he  will  not  have  to  add  the 
tax  to  the  cost  of  his  article  to  the  buyer. 

Apportionment  of  Reparation  Payments 

By  the  terms  of  an  agreement  made  at  Spa  July,  1920, 
the  sums  received  from  Germany  for  reparation  payments  are 
allocated  as  follows: — France,  52  per  cent.;  British  Empire, 
22  per  cent.;  Italy,  10  per  cent.;  Belgium,  8  per  cent.;  Japan 
and  Portugal,  each  ^  of  i  per  cent.  The  remaining  6>^  per 
cent,  is  reserved  for  the  Serbo-Croat-Slovene  State  and  for 
Greece,  Roumania  and  other  powers  not  signatories  to  the 
agreement.  No  provision  is  made  for  any  payment  to  the 
United  States. 

Inter-allied  agreements  exist  giving  Belgium,  subject  to 
various  conditions,  a  priority  on  satisfaction  of  her  reparation 
claim  up  to  the  amount  of  about  two  billion  gold  marks,  after 
the  costs  of  the  armies  of  occupation  have  been  met. 

It  will  be  seen  that  France  has  the  largest  stake  in  the 
final  outcome  of  the  reparation  payments. 

The  French  Claim 

As  we  have  already  noted  in  chapter  viii  the  amount  of 
the  French  claim  as  presented  to  the  reparation  commission 
in  February,  1921,  was  218,441  million  paper  francs,  140,607 
million  account  of  damages  to  property  and  77,834  million 
account  of  injuries  to  persons. 

Reducing  this  sum  to  dollars,  on  the  exchange  basis  of 
seven  cents  to  the  franc,  we  arrive  at  a  gold  value  of  say 
$15,290  million.  This  would  be  equal,  say,  to  76  billion  gold 
francs  or  61  billion  gold  marks,  or  substantially  the  68,640 
million  gold  marks  ($16,336  million)  which  France  will  be 
entitled  to  receive  over  a  long  period  of  years  under  the 


112  ]  BANKERS  TRUST  COMPANY 

terms  of  the  May,  1921  settlement.  The  claim  of  France  will 
be  payable  apparently  as  follows: — 6,240  million  gold  marks 
($1,485  million)  in  "Series  A"  bonds;  19,760  million  gold 
marks  ($4,703  million)  in  "Series  B"  bonds,  these  two  series 
of  bonds  to  be  Hquidated  over  a  term  of  35  years;  and  42,640 
million  gold  marks  ($10,148  million)  in  the  deferred  or  "Series 
C"  bonds,  the  eventual  payment  of  which  is  highly  proble- 
matical, but  which  French  authorities  estimate  may  be  paid 
over  a  period  of  48  years. 

The  Wiesbaden  Agreement 

On  October  4,  1921,  an  important  agreement  was  signed 
at  Wiesbaden  by  M.  Loucheur,  the  French  minister  of  the 
liberated  regions,  and  Dr.  Walther  Rathenau,  German  minis- 
ter of  reconstruction.  This  agreement  provides  in  substance 
for  making  oT  reparation  payments  by  Germany  to  France  in 
kind  instead  of  in  money.  Germany  undertakes,  as  from 
October  i,  192 1,  to  deliver  all  material  that  France  may 
demand  for  reconstruction  purposes,  up  to  the  limits  of  her 
capacity  for  production  and  subject  to  the  satisfaction  of  her 
own  domestic  necessities  and  to  the  quantity  of  raw  materials 
at  her  disposition.  The  total  value  of  the  reparations  in  kind 
thus  to  be  furnished  by  Germany  to  France  between  Octo- 
ber I,  1921,  and  May  i,  1926,  a  period  of  just  over  4>^  years, 
shall  not  exceed  7  billion  marks,  gold.  The  products  specified 
in  the  Treaty  of  Versailles  to  be  repaid  in  kind,  viz.:  shipping, 
coal,  dye-stufFs  and  chemical  drugs  are  excluded  from  the  new 
agreement,  but  their  value  is  to  be  included  in  the  total  of 
7  billion  marks,  gold,  just  mentioned.  No  payment  in  cash 
will  be  made  by  France  in  respect  of  materials  furnished  under 
this  agreement  as  their  value  will  be  deducted  from  the 
amount  owing  to  France  by  Germany  in  respect  of  repara- 


FRENCH  PUBLIC  FINANCE  [  II3 

tions.  It  is  not  necessary  here  to  «tate  all  the  details  of  the 
manner  in  which  this  agreement  is  to  be  carried  out.  It  may 
be  noted,  however,  that  France  is  not  limited  to  ordering 
and  receiving  materials  up  to  the  amount  of  what  her  share 
in  the  German  reparation  payments  in  any  one  year  may  be. 
If  she  orders  more  than  the  equivalent  value  of  her  share, 
the  surplus  will  be  carried  forward  and  set  off  against  future 
payments.  The  advantage  to  France  of  the  Wiesbaden  agree- 
ment may  be  summed  up  in  the  fact  that  it  will  enable  the 
restoration  of  the  devastated  regions  to  be  accelerated  by  at 
least  two  years.  France  will  also  be  able  to  avoid  the  greater 
part  of  the  difficult  and  costly  task  of  having  to  find  money 
for  the  restoration  in  question  and  will  be  able  to  devote  her- 
self to  the  development  of  her  natural  resources  and  many 
important  national  works;  such  as  the  electrification  of  her 
railways,  which  she  is  desirous  of  carrying  out.  The  repara- 
tion commission  has  approved  the  agreement,  but  with  certain 
reservations  chiefly  regarding  the  rights  of  the  powers  not 
represented  upon  the  commission.  As  certain  amendments 
to  the  agreement  have  also  been  proposed  by  the  interested 
parties  it  is  difficult  to  determine  when  it  may  become 
effective. 


Chapter  X 
Some  International  Comparisons 

^  I  ^HE  constantly  fluctuating  relative  values  of  international 
-■-  currencies  almost  vitiates  the  value  of  comparative 
figures  of  national  debts  and  budgets.  Not  only  are  figures 
constantly  fluctuating  as  between  nations,  but  also  national 
statistics  for  given  dates  are  with  difficulty  compared  be- 
cause of  the  fluctuations  in  the  buying  powers  of  home 
currencies.  These  difficulties  are  particularly  great  in  the  case 
of  Germany  and  of  other  nations  where  the  home  currencies 
are  steadily  depreciating  in  value  in  terms  of  foreign  currencies. 
Everything  is  in  a  state  of  flux.    Nothing  is  fixed. 

Take  Germany,  for  example.  The  estimated  net  expenses, 
for  the  fiscal  year  ended  March  31,  1922,  amount  to  around 
193  billion  marks.  If  we  turn  this  amount  into  dollars  at 
the  old  gold  parity  of  23.8  cents  to  the  mark,  we  obtain  a 
dollar  equivalent  of  about  46  billion,  but  the  mark  in  March, 
1922,  was  Worth  only  a  little  over  a  third  of  a  cent  or  one 
sixty-sixth  df  the  old  gold  basis.  On  this  basis  the  expendi- 
tures for  the \ fiscal  year  would  be  only  about  $695,ooo,chdo. 
However,  if  we  try  to  determine  how  much  the  German 
government  oould  buy  at  home  with  193  billion  marks  as 
compared  wi|h  what  the  mark  would  buy  in  191 3  we  find 
that  in  March,  1922,  it  took  around  49  marks  to  buy  what 
one  mark  would  have  bought  in  old  times.  This  would  mean 
that  the  buying  power  of  this  great  mass  of  marks  would  be 
around  $940  million.  If  instead  of  the  buying  power  of  the 
mark  in  March,  1922,  we  use  as  our  factor  the  average  buying 
power  for  the  full  year  1921  (say  19  to  i)  then  our  marks 
would  develop  a  value  equivalent  to  2.4  billion  dollars! 
114] 


FRENCH  PUBLIC  FINANCE  [  II5 

Expenditures  and  Receipts 

Obviously  to  compare  figures  of  current  expenditures  on 
the  dollar  basis  of  the  old  pre-war  gold  parities  would  be  very 
misleading.  A  comparison  based  on  the  exchange  values  of 
the  national  currencies  or  on  their  home  purchasing  power 
would  seem  to  give  a  more  correct  view.  However,  so  that 
the  reader  may  draw  his  own  conclusions,  we  have  thought 
best  to  present  tables  in  which  the  figures  are  compared  on 
three  bases,  that  is  on  the  gold  parity  basis,  the  exchange 
value  in  New  York  during  March,  1922,  and  the  average 
home  purchasing  power  basis  of  the  currencies  at  the  end  of 
March,  1922,  in  terms  of  the  1913  values  of  commodities. 
These  figures  compare  the  pre-war  and  present  status  of  the 
former  entente  allies,  the  United  States  and  Germany. 

Let  us  first  compare  the  total  expenses  with  the  total 
revenue  receipts  as  set  forth  in  the  table  on  page  116. 

In  view  of  the  fact  that  substantially  the  entire  sum  of 
governmental  expense  is  disbursed  at  home,  the  home  buying 
power  of  the  several  currencies  would  seem  to  afford  the 
fairest  basis  for  comparison  of  the  relative  burden  which 
the  peoples  of  these  nations  are  bearing. 

On  this  basis  the  people  of  France  are  carrying  the  heav- 
iest burden,  ^86  per  capita.  Belgium  comes  next  with  $J7  per 
capita,  then  England  with  a  burden  of  $71  for  each  of  her 
nationals.  Italy's  people  are  only  carrying  a  load  equal  to 
$27  each,  not  much  more  than  the  United  States  where  we, 
each  of  us,  must  find  $21  for  the  government.  Germany's 
national  expenses  on  this  basis  amount  to  only  $15  per  head 
of  population,  not  much  more  than  before  the  war. 

A  glance  at  the  second  column  of  the  table  shows  that 
the  United  Kingdom  and  the  United  States  are  meeting  their 


ii6 


BANKERS  TRUST  COMPANY 


EXPENDITURES  AND  REVENUE  RECEIPTS 

Former  Entente  Allies,  United  States  and  Germany 

Fiscal  Year  1913  or  1913-1914  vs.  Fiscal  Year  192 1  or  1921-1922 

(In  dollars — 000,000  omitted) 


Fiscal 

All 
Expenses 

Revenue 
Receipts 

Nation 
/ 

Year 

Ended 

g 

Popu- 
lat  on 

Total 

Per 
Capita 

Total 

%  All 
Expenses 

Per 
Capita 

Belgium     .... 

1913 
1921 
1921 
1921 

7 
7 

a      155 
a  1,870 
b      741 
c      539 

22 
267 
J  06 

77 

155 
986 
391 
284 

100.00 
52.76 
52.76 
52.76 

22 

141 

56 

40 

France  ..... 

1913 
1921 
1921 
192I 

39 
»38 

a      978 
a  10,040 
b  4,682 
c  3,270 

25 
264 
123 

86 

985 
4,201 
1,959 
1,368 

100.71 

I  41-84 

41.84 

41.84 

25 

no 

52 

36 

Italy 

1914 
1922 
1922 
1922 

36 
38 

a      506 
a  5,555 
b   1,471 
c    1,042 

14 

146 

39 

27 

513 

3,539 

937 

664 

101.38 
63.70 
63.70 
63.70 

14 
93 
24 
17 

United  Kingdom. 

1914 
1922 
1922 
1922 

46 

47 

a      977 
a  5,244 
6  4,721 
c  3,340 

22 
112 

JOO 
71 

962 
5,283 
4,756 
3,365 

98.47 
100.74 
J00.74 
100.74 

22 
112 
1 01 

72 

iUnited  States  .   . 

1914 
1922 
1922 

99 
109 

735 

3,485 

c  2,293 

7 
32 
21 

735 
4,250 
2,796 

100.00 

I2I.Q5 
121.95 

7 
39 
26 

iGermany      .    .    . 

1914 
1922 
1922 
1922 

68 
61 

a      880 
o45,959 
b      695 
c      940 

13 

753 

II 

15 

760 

23,259 

352 

476 

86.36 
50.61 
50.61 
50.61 

II 

8 

o  At  par  of  exchange — Belgium,  France  and  Italy,  19.3  cents;  United  Kingdom, 
J4.86;  Germany,  23.8  cents. 

6  Exchange  rate,  average  March,  1922 — Belgium,  8.43  cents;  France,  9  cents; 
Italy,  s.ii  cents;  United  Kingdom,  $4.37!^;  Germany,  0.36  cents. 

c  On  basis  average  wholesale  price  index  at  close  of  March,  1922  (1913  prices  = 
100%) — Belgium,  347;  France,  307;  Italy,  533;  United  Kingdom,  157;  United  States 
152;  Germany,  4,888. 

/  Budget  figures,  revised  by  actual  returns  so  far  as  possible. 

g  Belgium.  December  31;  France,  December  31;  Italy,  June  30;  United  States, 
June  30;  United  Kingdom,  March  31;  Germany,  March  31. 

«■  Not  including  Alsace-Lorraine. 

3  Net  results  only  of  Post  Office  Department  and  in  case  of  Germany,  also  of 
railroads. 

/  See  text,  top  of  page  118. 


FRENCH  PUBLIC  FINANCE  [  II7 

expenses  entirely  from  taxation.  The  continental  countries 
are  not  yet  doing  this,  but  if  we  eliminate  from  the  expenses 
of  France  her  payments  for  reconstruction  we  find  that  in 
1921  she  raised  by  taxation  fully  60  per  cent,  of  her  expenses 
and  that  she  expects  in  1922  to  raise  very  close  to  100  per  cent. 
(See  chapter  iv.)  Reconstruction  expenses  France  is  raising 
indirectly  from  loans  of  semi-state,  semi-private,  corpora- 
tions which  she  endorses.  Before  these  loans  mature  France 
expects  to  be  put  in  funds  to  meet  her  guaranty  by  the  receipt 
of  the  payments  due  her  by  Germany  on  reparation  account. 
Italy's  deficit  is  constantly  becoming  less.  After  being  nearly 
23,000  million  lire  in  1919  she  hopes  that  it  will  be  found  to 
be  only  about  5,000  million  when  the  accounts  for  the  year 
ending  June  30,  1922,  are  balanced. 

Even  Germany's  national  finances  are  showing  a  greatly 
improved  condition.  In  the  first  post-armistice  year,  that 
ended  March  31,  1920,  73.43  per  cent,  of  her  budget  was 
raised  by  borrowing,  while  in  the  fiscal  year  ended  March  31, 
1922,  only  41.24  per  cent,  was  so  raised. 

Let  us  now  consider  the  character  of  the  expenses  of  the 
nations  whose  affairs  we  are  reviewing,  as  shown  by  the  table 
on  page  118. 

A  glance  at  the  table  shows  that  except  in  the  case  of 
Germany  the  heavy  burdens  are  the  military  expenses,  the 
pensions  and  the  debt  charge.  In  the  case  of  France  these 
items  account  for  57.94  per  cent,  of  the  total  estimated  expen- 
ditures for  1921.  They  account  for  58.20  per  cent,  of  the 
budget  of  the  United  Kingdom  for  the  1921-1922  year;  for 
66.86  per  cent,  of  the  budget  of  our  United  States  for  the 
same  year;  for  33.88  per  cent,  of  Italy's  budget  for  the  pre- 
vious year,  the  data  for  1921-1922  not  yet  being  available,  and 
for  28.40  per  cent,  of  Belgium's  budget  for  1921. 


Ii8 


BANKERS  TRUST  COMPANY 


EXPENDITURES 

Former  Entente  Allies,  United  States  and  Germany 

Fiscal  Year  1913  or  1913-1914  vs.  Fiscal  Year  1921  or  1921-1922 

(In  dollars — 000,000  omitted) 


Nation 

/ 


Fiscal 
Year 
Ended 


Military 


Total 


%A11 
Ex- 
pen- 


«Pensions 


Total 


%A11 
Ex- 
pen- 
ses 


dDEBT 

Charge 


Total 


pen- 
ses 


Other 
Expenses 


Ordi- 
nary 


%A11 
Ex- 
pen 
ses 


kEx- 

traor- 

di- 

nary 


%A11 
Ex- 
pen- 


Belgium.   .a 
a 


France 


Italy  . 


United 

Kingdom  a 

b 


^United 
States 


Germany  a 


1913 
1921 
1921 
1921 

1913 
1921 
1921 
1921 

1914 
1922 
1922 
1922 

1914 
1922 
1922 
1922 

1914 
1922 
1922 

1914 
1922 
1922 
1922 


31 

206 

81 

59 

3S0 

1,679 

783 

547 

131 
764 
202 
143 

374 
899 
809 
573 

313 
875 
576 

466 

2,380 

36 

49 


20.0 
II.O 
II.O 
II.O 

35.8 
16.7 
16.7 
16.7 

25.9 
13.7 

I3'7 
I3>7 

38.3 
17.1 
17.1 
17.J 

42.6 
25.1 
25.1 

52.9 

5-2 
5-2 

5-2 


35 
25 

62 

1,051 

490 

343 

h 

2X2 
56 
40 

34 
539 
485 
343 

173 
480 
316 

34 

1.904 

28 

39 


4.7 
4.7 
4-7 

6.3 
10.5 
10.5 
10.5 


3.8 
3.8 
3.8 

3-5 
10.3 
10.3 
10.3 

23-5 
13.8 
13.8 

3.8 
4-1 
4-1 
4-1 


42 

237 

94 

68 

186 
3.088 
1.440 
1,006 

105 
907 
240 
170 

117 
1,614 
1.453 
1,028 

23 

975 
641 

58 

4.855 
74 
99 


27.0 
12.7 
12.7 
12.7 

19-0 
30.7 
30.7 
30.7 

20.7 
163 
16.3 
16.3 

12.0 
30.7 
30.7 
30.7 

3-1 
27.9 
27.9 

6.6 
10.5 
10.5 
10.5 


82 
941 
373 
271 

380 

2,080 

970 

677 

270 

3.543 

938 

66s 

452 
2,192 
1.974 
1.396 

226 

1,123 

739 

322 

3.136 

48 

64 


52.9 
50.3 
50.3 
50.3 

38.8 
20.7 
20.7 
20.7 

53-3 
63.7 
63.7 
63-7 

46.2 
41.8 
41.8 
41.8 

30.7 
32.2 
32.2 

36.6 
6.8 
6.8 
6.8 


398 
158 

115 

21.3 
21.3 
21.3 

2.142 
999 
698 

21.3 
21.3 
21.3 

130 
34 

24 

2.3 
2.3 
2.3 

32 
21 

.9 
.9 



33,684 
509 
689 


7J.J 
73-3 
73.3 


a  At  par  of  exchange — Belgium,  France  and  Italy,  19.3  cents;  United  Kingdom, 
$4.86;  Germany,  23.8  cents. 

6  Exchange  rate,  average  March,  1922 — Belgium,  8.43  cents;  France,  9  cents;  Italy, 
S.ii  cents;  United  Kingdom,  $4-37H;  Germany,  0.36  cents. 

c  On  basis  average  wholesale  price  index  at  close  of  March,  1922  (1913  prices=ioo%) 
— France,  307;  Italy,  533;  United  Kingdom,  IS7;  United  States,  152;  Germany,  4,888. 

d  Exclusive  of  certain  pension  payments  which  somejcontinental  countries  treat  as 
part  of  the  debt  charge  and  which  we  include  in  "pensions,"  and  not  including  interest 
upon  debts  to  foreign  governments. 

e  Statistics  imperfect.  Include  some  civil  pensions  and  pensions  of  past  wars  as 
well  as  the  last  war. 

/  Budget  figures,  revised  by  actual  returns  so  far  as  possible. 

g  Belgium,  December  31;  France,  December  31;  Italy,  June  30;  United  States, 
June  30;  United  Kingdom,  March  31;  Germany,  March  31. 

h  Data  not  available. 

j  Net  results  only  of  Post  Office  Department  and  in  case  of  Germany,  also  of 
railroads. 

k  Includes  for  France  and  Belgium  reconstruction  and  other  special  expenditures; 
or  Germany  expenditures  in  connection  with  execution  of  Peace  Treaty. 


FRENCH  PUBLIC  FINANCE 


[119 


It  will  be  a  surprise  to  many  readers  to  note  that  the 
percentage  of  the  total  expenses  absorbed  by  the  military 
budgets  is  less  today  than  it  was  before  the  war. 

In  the  case  of  Germany  reparation  and  other  payments 
required  by  the  terms  of  the  peace  treaty  account  for  about 
58  per  cent,  of  the  total  expenditures,  and  railway  deficits, 
food  and  labor  subsidies  and  other  exceptional  expenses  ac- 
count for  another  15  per  cent.  Thus  it  will  be  seen  that  the 
ordinary  budget  including  the  debt  charge  and  military  ex- 
penses only  amounted  to  27  per  cent,  of  the  total  net  expendi- 
ture. The  reparation  item  in  the  1921-1922  accounts  is  less 
than  half  of  the  amount  which,  on  the  basis  of  the  London 
agreement  of  May,  1921,  as  already  described  in  chapter  ix, 
must  be  placed  in  the  1922-1923  and  subsequent  budgets. 

We  print  herewith,  expressed  in  their  respective  national 
currencies,  comparative  tables,  compiled  from  official  sources, 
of  revenue  and  other  receipts  and  of  expenditures  for  Italy, 
the  United  Kingdom,  the  United  States  and  Germany.  Simi- 
lar data  for  France  may  be  found  in  chapters  iii,  iv,  xiv,  xv 
and  xvi. 

ITALY 

Government  Expenditures 

(In  lire — 000,000  omitted) 


Years  Ended  June  30 

1914 

191S 

1916 

1917 

1918 

1919 

1920 

1921 

Budget 

Estimate 

1922 

flMinistries  of  Finance  and 
Treasury 

1,016 

I1I36 
3,259 

1,297 
8,262 

1.994 
14.636 

2,848 
20,640 

1,092 

4,022 

24.188 

1.777 

1,531 

537 

397 

9,454 
8.572 

17,010 
5,059 

Military 

Military  Pensions      .    .    . 

918 

Civil  Government      .    .    . 
Reconstruction 

606 

834 

893 

790 

3.933 

S.IS8 
672 
884 



Post  Office,  Etc 

148 

166 

173 

175 

238 

Total  Expenses  per 

Budget 

Revenue  Receipts  .    .    . 
Deficit 

2,688 

5,395 

2,560 
2,835 

10,625 

17,595 

25,299 

7.533 

17,766 

32,452 

9,676 

22,776 

23,093 

15.208 
7,885 

28,783 
10^330 

23,348 
18,336 
5,012 

2,688 

5.395 

10.625 

17.595 

25,299 

32.452 

23,093 

28,783 

23.348 

a  Includes  debt  charge;  item  not  given 


I20] 


BANKERS  TRUST  COMPANY 


ITALY 

Government  Receipts 

(In  lire — 000,000  omitted) 


Years  Ended  June  30 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

1921 

Principal  Revenues 

Direct  Taxes 

Land  and  Buildings    .... 

194 

209 

223 

234 

259 

271 

277 

285 

Income  Tax      

347 

383 

436 

461 

492 

581 

709 

1,024 

Tax  on  Payments 

SI 

219 

276 

355 

190 

143 

War  Excess  Profits  and  Capi- 

tal Increment 

108 

452 

806 

1,047 

2,014 

Tax  on   Dividends,    Interest 

and  Premiums,  etc 

II 

36 

S3 

53 

III 

162 

Total  Direct  Taxes      .   .    . 

541 

592 

721 

1,058 

1,532 

2,066 

2,334 

c4,067 

Taxes  on  Business 

Successions  and  Mortmain    . 

57 

57 

72 

82 

90 

136 

167 

188 

Registration  &  Stamp  Duties . 

205 

206 

232 

328 

454 

576 

937 

914 

Mortgages 

II 

II 

9 

10 

14 

22 

53 

It 

Sales  Tax — Luxuries       .    . 



Government  Concessions   .    . 

14 

14 

12 

12 

16 

18 

35 

46 

Motor  Vehicles,  Cinemato- 

graph, Etc 

7 

II 

13 

16 

IS 

62 

106 

149 

Bank  Note  Circulation  .    .    . 

310 

Total  Business  Taxes.    .    . 

294 

299 

338 

448 

589 

814 

1,298 

cl,915 

Customs  and  Excise  Duties 

Custom  Duties 

343 

211 

325 

502 

567 

561 

513 

525 

Excise  Duties 

278 

251 

316 

420 

403 

472 

692 

96s 

Total  Customs,  etc.     .   .    . 

621 

462 

641 

922 

970 

1,033 

1,205 

cl,608 

Total  Tax  Revenue .... 

1,456 

1,353 

1,700 

2,428 

3,091 

3,913 

4,837 

7,590 

Government  Monopolies 

Industrial  Monopolies     .... 

547 

573 

700 

846 

1,129 

1,521 

2,008 

3.013 

Commercial  Monopolies 

453 

522 

Railways 

71 

41 

68 

173 

102 

116 

92 

99 

Post  Office.  Telegraph  and  Tele- 

216 

26s 

282 

304 

344 

499 

State  Sugar 

3 

28 

57 

67 

69 

Total  Monopolies  and  State 

Services 

789 

785 

984 

1,287 

1,541 

1,998 

2,964 

4,202 

State  Domain 

17 

16 

17 

17 

21 

16 

17 

17 

Sundry  Receipts 

262 

406 

1,032 

1,613 

2,880 

3.749 

7.390 

6.644 

Total  Revenue 

2,524 

2,560 

3,733 

5,345 

7,533 

9,676 

15,208 

18,453 

Total  from  Borrowing.    .    . 

3,071 

7,853 

13,569 

21,320 

23,447 

14,376 

10,570 

Grand  Total  Receipts .    .    . 

2,524 

5,631 

11,586 

18,914 

28,853 

33,123 

29,584 

29.023 

Revenue — %  Receipts 

100.00 

45.46 

32.22 

28.26 

26.11 

29.21 

SI.41 

63.51 

Borrowing — %  Receipts     .    .    .    . 

54-54 

51.77 

71.74 

73.89 

70.79 

48.59 

36.42 

a  Discontinued  in  1920-21. 
6  New  in  1920-21. 

c  Items  are  provisional  figures  and  therefore  do  not  exactly  agree  with  the  totals  which 
are  definitive. 

d  Estimated  Cash  Realization. 


FRENCH  PUBLIC  FINANCE 


[  121 


UNITED  KINGDOM 

Government  Expenditures 
(In  sterling — 000,000  omitted) 


Years  Ended  March  31 

1914 

191S 

1916 

1917 

1918 

1919 

1920 

1921 

C1922 

Debt  Charge 

Military    and    Other   Special 
War  Expense 

24 

77 

23 

437 

60 
1,400 

127 
1.974 

190 
2.403 

270 
2,198 

332 

691 

99 

496 

48 

349 

292 
109 
391 

54 

332 

18S 
in 

Civil  Government 

Post  Office 

72 

25 

74 
26 

72 

27 

71 
26 

78 
26 

85 
26 

384 
67 

Total  Expenditure    .... 
Exchequer  Balance      .... 

198 

10 

560 

83 

1,559 

26 

2,198 

26 

2,697 

21 

2,579 
13 

1,666 

9 

1,195 
3 

1,079 
II 

To  Be  Accounted  for  ...    . 

208 

643 

1.585 

2,224 

2.718 

2.592 

1,675 

1,198 

1,090 

a  Division  of  expenses  partly  estimated. 


UNITED  KINGDOM 

Government  Receipts 
(In  sterling — 000,000  omitted) 


Years  Ended  March  31 

1914 

191S 

1916 

1917 

1918 

1919 

1920 

1921 

1922 

Exchequer  Balance     .... 

6 

10 

83 

26 

26 

21 

13 

9 

3 

Tax  Revenue 

Customs 

Excise 

Rstate  Duties 

Stamps                   

35 
40 
27 
10 

4 
47 

39 

42 

28 

8 

3 

69 

60 
61 
31 

7 

3 

128 

* 

11 
'I 

3 

205 
140 

71 
39 

3 

240 
220 

103 
60 
30 
12 

3 

291 
285 

149 

133 

41 

23 

4 

359 
290 

134 

200 

48 

26 

10 

394 
219 

130 

194 

52 

20 

Land,    House    and    Motor 
Vehicles 

Property  and    Income,  in- 
cluding Super-tax    .    .    . 

Excess  Profits 

14 

399 
48 

Total  Tax 

Post  Office 

163 
31 

4 

189 

30 

8 

290 
34 
13 

514 
34 

25 

613 

35 
59 

784 

999 

44 

296 

1,031 

50 

345 

857 

56 

212 

Total  Revenue 

Borrowing  Net 

198 

4 

227 
406 

337 
1,165 

573 
1,625 

707 
1,985 

889 
1,682 

1,339 
323 

1,426 
-237 

1,125 
-38 

Total  Net  Receipts      .    .    . 
Total  Resources 

202 

208 

98.02 
1.98 

633 

643 

1,502 

1.585 

2,198 

2,224 

2,692 

2,718 

2,571 

2.592 

1,662 

1.675 

1,189 

1,198 

1,087 

1,090 

Revenue — %  Receipts    .    .    . 
Borrowing — %  Receipts     .    . 

35.53 
64.47 

22.44 
77.56 

26.02 
73.98 

26.26 
73.74 

34-58 
65.42 

80.56 
19.44 

100.00 

100.00 

*  £140,000. 

o  1915-1920.  Including  was  contributions  from  India,  and  other  overseas  colonies  and 
dependencies,  also  receipts  from  sales  of  war  property,  from  trading  undertakings,  etc. 

For  historical  and  other  data  re  public  finances  of  the  United  Kangdom  see  English  Public 
Finance,  Bankers  Trust  Company  Publication,  1920. 


122] 


BANKERS  TRUST  COMPANY 


UNITED  STATES 
Government  Expenditures 
(In  dollars — 000,000  omitted) 


Years  Ended  June  30 

1914 

191S 

1916 

1917 

1918 

1919 

1920 

1921 

CI922 

Debt  Charge     .    .    . 
Army  and  Navy  .    . 
Military  Pensions    . 
Civil  Establishment 

'i 

y  23 

vl  264 

0173 

240 

23 
268 
164 

277 

23 
287 
159 
256 

25 

666 
160 
297 

198 
7.023 

181 
1,564 

616 

11,229 

222 

3.299 

1,024 

1.67s 

213 

2,776 

997 
1. 142 

261 
1,971 

991 
2.344 

Total  Ordinary     . 
Panama  Canal     .    . 
Special 

700 
35 

732 
29 

72s 
17 

1,148 
&919 

8,966 

21 

4,804 

15,366 

12 

2.973 

5,688 

6 

692 

4.371 

16 

708 

3.335 

3 

35 

Total  Expenses    . 
Balance  in  Treasury 

735 

162 

761 

104 

742 

178 

2,086 

967 

13,791 

0624 

18,351 

1,226 

6,386 

360 

5,095 
533 

3,373 

272 

To  Be  Accounted  fo 

r 

897 

865 

920 

3,053 

14,415 

19,577 

6,746 

5,628 

3.64s 

a  This  is  smaller  than  amount  shown  per  contra  as  brought  forward  July  i,  1919.  because 
after  that  date  unexpended  balances  in  hands  of  disbursing  officers  are  included  in  the  "Balance 
in  Treasury." 

b  Special  expenditures  include  purchase  of  obligations  of  foreign  governments,  purchase  of 
farm  loan  bonds  and,  from  19 19,  certain  adjustments  in  the  accounts  of  disbursing  officers 
and  agencies. 

c  The  month  of  June  partly  estimated. 

UNITED  STATES 

Government  Receipts 

(In  dollars — 000,000  omitted) 


Years  Ended  June  30 

1914 

191S 

1916 

1917 

1918 

1919 

1920 

1921 

<fl922 

Balance  in  Treasury  .    .    . 

166 

162 

104 

178 

967 

CI.68S 

1,226 

360 

533 

Ordinary  Receipts 

Customs 

Income  and  Profits  Taxes  . 
Misc.  Internal  Revenue 
Miscellaneous  Receipts  .    . 

292 
71 

309 
63 

210 
80 

336 
72 

213 
125 
388 

54 

226 

359 

450 

83 

183 

2,839 

857 

295 

183 
2,601 
1,239 

624 

323 
3.957 
1,442 

973 

308 
3,228 
1,352 

685 

356 
2,068 
1,145 

528 

Total  Ordinary 

Panama  Canal 

735 

698 

780 
2 

1,118 
6 

4.174 

4,180 
9,268 

4,647 
7 

6,695 
9 

5,573 
12 

4.097 
12 

Total  Revenue 

Net  Borrowing 

735 
-4 

698 
5 

782 
34 

1,124 
1,751 

4,654 
13,238 

6,704 
-1,184 

5,585 
-317 

4,109 
-1,014 

a  Total  Net  Receipts  .... 
Total  Net  Resources     .    . 

731 

897 

703 

865 

816 

920 

2,875 

3,053 

13,448 

14,415 

17,892 

19,577 

5,520 

6,746 

5,268 

5,628 

3,095 

3.628 

Revenue — %  Receipts    .    .    . 
Borrowing — %  Receipts     .    . 

100.54 

99.29 
.71 

95.83 
4.17 

39.09 
60.91 

31.09 
68.91 

26.01 
73.99 

100.00 

100.00 

100.00 

b  Postal  Revenues 

Expenditures 

288 
284 

287 
298 

312 
306 

330 
320 

389 
325 

436 
362 

437 

454 

464 
621 

Balance 

+4 

—  II 

+6 

+  10 

+64 

+  74 

-17 

-157 

a  Includes  net  revenues,  only,  of  post-office  department. 

b  As  reported  by  post-office  department.  Only  the  net  result  of  operations  is  brought  into 
treasury  statement. 

c  The  method  of  accounting  was  changed  in  1918-19  to  include  in  "balance  in  treasury" 
unexpended  balances  held  by  disbursing  officers  and  agencies. 

d  The  month  of  June  partly  estimated. 


FRENCH  PUBLIC  FINANCE 


[123 


GERMANY^^ 

Government  Expenditu 
(In  marks — 000,000  omitt 

ElES 

Year  Ended  March  31 

1914 

191S 

1916 

1917 

c 
1918 

1919 

1920 

1921 

01922 

Debt  Charge     .... 
Military    and    Demo- 
bilization   

Pensions 

Civil  Government    .    . 

239 

952 

146 
1,228 

463 

7.277 
128 
836 

1.340 

23.946 
109 
402 

2,610 

24.743 
105 
342 

6,511 

42,188 
102 
368 

5.907 

40,000 
147 
352 

8,915 

13,622 
1.334 
3,743 

35.629 

22,285 

3.724 

18,694 

20,399 
10,000 

8,000 
13.177 

Total  Ordinary    .    . 

2,565 

8,704 

25,797 

27,800 

49,169 

46,406 

27,614 

80,332 

51,576 

Incident  to  Peace 
Treaty 

17.000 
17.234 

25,629 
6,471 
6,790 

10,728 

112,000 

Sundry  Special .... 
Reconstruction 

118 

68 

18 

33 

2.934 

726 

3.000 
5,000 

Food  and  Labor  Minis- 
tries     

9,000 

Total  Extraordinary 

118 

68 

18 

33 

2,934 

726 

34,234 

49,618 

129,000 

Post  and  Telegraph     . 
^     Gk)vemment  Printing  . 
'     Railways 

713 

10 

113 

753 

14 

109 

749 

16 

109 

791 

28 

128 

921 
45 
191 

758 
10 

158 

1.073 
68 
55 

8,534 

316 

30,223 

65.000 

Grand  Total      .    .    . 

3,519 

9,648 

26,689 

28,780 

53,260 

48,058 

63,044 

169,023 

245,576 
b 

a  Approximate  figures.       b  Net  expenses  for  1922  (ordinary  and  extraordinary  as   above 
plus  deficit  in  operation  government  services)  =  193,105  million. 

GERMANY 

Government  Receipts 

(In  marks — 000,000  omitted) 


Year  Ended  March  31 

1914 

1915 

1916 

1917 

c 
1918 

1919 

1920 

1921 

1922 

Tax  Revenues 

Ordinary 

Revenues 

Extraordinary.    .    .    . 
Government  Services 

Post  and  Telegraph  . 

Government  Printing 

Railways 

2,187 
81 

159 

2,471 

370 

745 

19 

108 

1.826 

113 

742 

24 

120 

2,122 

93 

761 

148 

8,010 

2,288 

834 

50 

183 

6,275 
108 
881 

At 

14.379 

938 

1.336 
71 
23 

53.046 

3.195 

5.355 

410 

17.989 

87,374 

10,353 

"42",  lis 

Total  Services    .    . 

1,008 

872 

886 

941 

1.067 

1. 057 

1.430 

23,754 

52,471 

Total  Revenue   .    .    . 
Borrowing — Net     .    .    . 

3,276 
109 

3,713 
4,435 

2,825 
20,382 

3,156 
19,659 

11,365 
23,851 

7,440 
40,618 

16,747 
46,297 

79,995 
89,028 

139,845 
105,731 

Total  Receipts    .    .    . 

3,385 

8,148 

23,207 

22,815 

35,216 

48,058 

63,044 

169,023 

245,576 

Revenue — %  Receipts  . 
Borrowing — %  Receipts 

96.78 
3.22 

45.57 
54-43 

12.17 
87.83 

13.83 
86.17 

32.27 
67.73 

15.48 
84.51 

26.09 
73.43 

47.33 
52.67 

58.76 
41.24 

c  These  figures  are  as  in  the  official  statement.     The  large  difference  is  not  explained. 


124  1 


BANKERS  TRUST  COMPANY 


GERMANY 
Physical  and  Economic  Data 

Pre- War  vs.  Post- War 
(coo  omitted — except  in  "area") 


Area   (Actual  figures,  Eng- 
lish square  miles)  .    .    . 

Colonies  and  Dependencies 
Population — Home.    .    .    . 

Colonies  and  Dependencies 
{Metric  Tons) 

Coal  Reserves 

Potash  Reserves     .... 
Mineral  Output 

Coal. 

Lignite 

Coke 

Iron  Ore      

Pig  Iron . 

Steel     

Potash 

Beet  Sugar  Output    .    .    . 
Agricultural  Output 

Wheat 

Rye 

Barley 

Oats 

Potatoes  

Sugar  Beets 

Live  Stock  (Head) 

Horses 

Cattle 

Sheep  

Swine 

Foreign    Trade    (metric 
tons) 

Exports 

Imports 

Total  Foreign  Trade.    .    . 
Shipping — Tonnage  .   .    .    . 


1913 


208,780 

[,027,820 

67,812 

12,065 

0423,356 
a    2,300 

191,511 
87,233 
32,167 
28,607 
16,764 
16,649 
1,110 
2,730 

3,972 
10,427 

3,138 

9,038 

45,569 


4,516 
20,443 

5,476 
25,166 


73,713 

72,831 

146,544 

5,108 


192] 


181,909 
61,000 


0300,000 
a    2,000 

136,210 

123,011 

27,921 

h    7,500 

7,500 

9,000 

1,138 

1,153 

2,664 
6,610 
1,748 
4,717 
26,821 

7,555 

c  3,581 
c  16,789 
c  6,139 
c  14,149 


19,810 

18,836 

d  38,646 
680 


Loss 

or 
Gain 


26,871 

1,027,820 

6,812 

12,065 

ai 23,3s 6 
a       300 

55,301 
35,778 

4,246 
21,107 

9,264 

7M9 
28 

1,577 

1,308 
3,817 
1,390 
4,321 
18,748 


935 

6,354 

663 

11,017 


53,904 

53,994 

107,898 

4,606 


Per  Cent 

Loss  or 

Gain 


12.86 
100.00 

10.04 
100.00 

29.07 
13.04 

28.87 
41.02 
13-19 
73-78 
55-26 

45-94 
2.52 

43-11 

32.93 
36-61 
44.29 
47-81 
41.14 


20.70 
31-03 
12. II 
43-78 


73-12 

74-13 
73-63 

90-17 


a  000,000  omitted. 

b  Estimated  present  capacity  (pre-war  basis,  less  Lorraine,  etc.). 

c  1920. 

d  1920.    The  1921  figures  not  available,  as  none  were  issued  for  first  four  months. 


FRENCH  PUBLIC  FINANCE  [  1 25 

Germany' s  Economic  Status 

In  considering  the  status  of  Germany  it  will  be  of  interest 
to  review  her  economic  position  before  and  since  the  war. 
This  is  done  in  the  table  on  the  opposite  page  which  may  be 
compared  with  a  table  for  France  prepared  along  similar  lines 
which  is  printed  on  page  96. 

The  most  striking  feature  is,  of  course,  the  transfer  of 
Alsace  and  Lorraine  from  Germany  to  France.  This  swings 
the  European  premiership  in  iron  and  steel  from  the  former 
country  to  the  latter  and  divides  the  great  potash  fields  of 
the  world  between  the  two  nations. 

Other  territorial  losses  take  away  from  Germany  fully 
25  per  cent,  of  her  former  coal  reserves.  Reference  may  be 
made  to  the  maps  printed  herewith  for  the  territorial  losses 
of  Germany  in  Europe  and  for  the  redistribution  of  territory 
in  Central  Europe  and  the  Balkans. 

In  addition  to  territorial  losses  in  Europe,  Germany  has 
lost  her  entire  colonial  possessions. 

National  Debts  Compared 

If  it  is  difficult  under  present  conditions  to  compare 
the  statistics  of  expenditure  and  of  income  of  different 
nations,  it  is  still  more  of  a  problem  how  to  compare  the 
debt  statistics. 

To  again  illustrate  by  German  conditions.  At  par  of  ex- 
change Germany  owed  on  March  31,  1922,  over  86  billion 
dollars,  but  at  actual  exchange  rates  she  owed  less  than  i>^ 
billion  dollars  or  not  much  more  than  she  owed  just  before 
the  war.  At  the  average  buying  power  of  her  currency  for 
the  year  1921  in  terms  of  1913  prices  the  debt  would  figure 
out  at,  say,  4.6  billion  dollars,  but  if  we   take  the  greatly 


FRENCH  PUBLIC  FINANCE  [12/ 

depreciate'd  buying  power  of  the  mark  at  the  end  of  March, 
1922,  the  debt  shrinks  to  1.7  billion  dollars.  What  is  the 
national  debt  of  Germany?  Who  can  say  what  it  is? 

One  thing  is  obvious,  namely  that  the  bond-holder  who 
invested  his  marks  in  his  country's  securities  before  the  great 
depreciation  in  the  buying  power  of  the  mark  occurred  is  now 
in  a  sad  predicament.  He  may  have  invested  gold  marks 
worth  nearly  24  cents,  or  he  may  have  invested  during  the 
war  when  the  mark  still  had  approximately  its  pre-war  pur- 
chasing power,  but  he  must  take  his  income  in  a  mark  worth 
only  about  a  third  of  a  cent  American  money.  For  him 
the  debt  already  has  virtually  been  repudiated.  On  the  other 
hand  the  man  who  bought  treasury  bills  during  1921  and  paid 
for  them  in,  say,  one  cent  marks  receives  his  income  more 
nearly  on  an  equitable  basis,  but  even  in  his  case  the  buying 
power  of  the  income  a  few  months  after  his  investment  was 
made  is  more  than  cut  in  two. 

We  have  taken  German  conditions  to  illustrate  the 
difficulty  of  instituting  comparisons  either  in  time  in  a  given 
country;  or,  in  place,  that  is  between  one  country  and 
another  or  several  others. 

The  fluctuations  in  values  have  by  no  means  been  as 
extreme  in  France,  or  Italy,  or  the  United  Kingdom,  or  the 
United  States.  In  fact  in  dealing  with  the  statistics  of  these 
nations  we  are  now  meeting  problems  the  reverse  of  those 
which  we  find  in  the  case  of  Germany.  Since  1920  the  home 
buying  power  of  these  currencies  has  been  steadily  improving 
as  also  has  the  dollar  value  of  the  currencies  of  the  European 
countries  mentioned.  This  is  tending  to  bring  the  exchange 
value  of  the  debts  nearer  to  their  par  values.  It  also  has  the 
effect  of  increasing  the  burden  of  the  tax  payer  because 
a  better  dollar,  franc,  lira  or  pound  is  being  given  in  payment 


128 


FRENCH  PUBLIC  FINANCE  [  1 29 

of  interest  than  was  being  given,  say,  in  1920.  On  the  other 
hand,  the  bond  holder,  the  "rentier"  as  they  say  in  France, 
thus  is  being  proportionately  benefitted  as  the  interest  which 
he  receives  will  buy  more  nearly  what  it  would  when  he 
loaned  his  money  to  the  state. 

Floating  Debts 

This  improving  exchange  value  of  certain  national  cur- 
rencies at  home  and  abroad  is  making  it  possible  for  the 
entente  nations  and  the  United  States  to  borrow  on  their 
treasury  bills  at  lower  rates  and  a  beginning  is  being  made  in 
funding  this  more  dangerous  form  of  debt.  Theoretically 
a  floating  debt,  that  is  a  debt  the  payment  of  which  can 
be  demanded  within  a  few  weeks  or  months,  is  bad.  How- 
ever, it  has  its  advantages  in  being  a  more  flexible  form 
of  debt,  because  the  interest  can  be  readjusted  to  meet 
market  conditions,  or  the  principal  can  be  reduced  when  a 
treasury  surplus  accrues,  while  the  amount  can  again  be 
increased  if  an  unexpected  demand  for  financial  resources 
develops.  Therefore  it  is  desirable  to  have  a  certain  propor- 
tion of  the  public  debt  in  this  form.  When  the  propor- 
tion becomes  dominant,  as  is  the  case  today  in  Germany 
and  in  Belgium,  the  situation,  theoretically  at  least,  is 
dangerous  and  in  case  of  a  sudden  demand  for  payment  might 
put  the  state  in  a  position  of  technical  default.  Perhaps  a 
more  serious  danger  is  that  under  such  conditions  the  state 
tends  to  absorb  too  large  a  part  of  the  banking  resources  of 
the  nation  and  thus  to  limit  the  amount  of  capital  available 
for  commerce  and  industry.  It  is  true  that  under  such 
conditions  the  note  issuing  power  of  the  state  or  of  the  banks 
is  correspondingly  stimulated,  with  the  inevitable  outcome 
of  which  we  are  having  object  lessons  today  in  the  cases  of 


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130] 


FRENCH  PUBLIC  FINANCE  [13I 

Germany,  the  former  central  powers,  in  Poland  and  in  its 
most  virulent  form  in  Russia. 

The  different  nations  whose  affairs  we  are  studying  are 
leaning  upon  their  banks  in  the  following  ratios,  listing  the 
countries  in  the  order  of  their  bank  loans:  Germany  probably 
for  over  50  per  cent,  of  her  floating  debt;  Italy  for  probably 
about  33>^  per  cent. — in  her  case  the  statistics  reaching  the 
United  States  are  incomplete;  France  for  under  30  per  cent.; 
while  the  United  Kingdom  and  the  United  States  are  not 
directly  borrowing  any  money  whatever  from  their  banks. 
In  addition  to  direct  loans,  we  know  that  in  the  case  of  Ger- 
many a  substantial  amount  of  short  term  debt  in  the  form 
of  treasury  bills  is  held  by  the  banks  for  investment  account, 
and  it  is  probable  that  this  is  true  also  of  the  other  nations, 
and  also  that  treasury  bills  are  being  accepted  from  individual 
or  corporate  investors  as  collateral  for  loans. 

We  have  already  noted,  when  discussing  the  budgets  and 
the  budgetary  resources  of  our  former  European  allies,  that 
expenses  are  being  curtailed  and  revenues  from  taxation  in- 
creased. Apparently  for  at  least  another  year  France,  Italy 
and  Belgium  must  continue  to  meet  part  of  their  expenses  by 
additional  borrowing,  but  indications  point  to  a  steady  im- 
provement in  this  respect.  In  England  we  may  expect  to  see 
some  actual  reduction  in  total  debt  and  an  improving  status 
in  the  form  of  the  debt;  while  here  at  home  a  similar  develop- 
ment may  be  reasonably  anticipated. 

Note  Circulation 

As  a  result  of  the  war  and  post-war  financing  the  currency 
note  circulation  of  the  nations  whose  affairs  are  under  review 
increased  from  1913  to  various  dates  in  the  second  half  of 


132] 


BANKERS  TRUST  COMPANY 


1921,  as  follows:  Germany,  4,658  per  cent.;  England,  867  per 
cent.;  Italy,  639  per  cent.;  France,  504  per  cent,  and  the 
United  States  240  per  cent. 

In  the  United  Kingdom  as  well  as  in  our  United  States 
the  bank  note  circulation  is  heavily  supported  by  specie, 
but  in  our  case  the  notes  are  exchangeable  for  specie  on 
demand,  while  in  England  this  cannot  yet  be  permitted  be- 
cause of  the  large  outstanding  issue  of  government  notes, 
known  as  "currency  notes."  The  Bank  of  France  also  is 
carrying  large  specie  reserves  which  in  good  time  will  form 
a  basis  for  the  resumption  of  specie  redemption  of  her  notes. 

It  is  obvious  that  the  original  genesis  of  the  increased  note 
issues  was  the  policy  of  financing  government  requirements 
by  inflation  of  the  currency  and  of  bank  credits. 


FLOATING  DEBTS  AND  CURRENCIES 
(In  dollars  at  Exchange  Parities — 000,000  omitted) 


Floating  Debts 

Currencies  (Paper) 

Currency 
Increase 
%  Float- 
ing Debt 
Increase 

Nation 

Total 
Dec. 
1913 

Total 
Dec, 
192 1 

In- 
crease 

Total 
Dec, 
1913 

Total 
Dec, 
1921 

In- 
crease 

Belgium  .  . 
France.  .  . 
Italy  .  .  . 
United 

Kingdom , 
United 

States  ,  . 
Germany .    . 

$103 

402 

6169 

di6o 

b     I 

$5,204 

16,974 
c  6,601 

6,124 

2,195 
62,913 

$5,101 

16,572 

6,432 

5,964 

2,194 
62,913 

$206 
1,165 
6537 

222 

ei,o69 
610 

$1,213 

7,297 

C3,970 

2,167 

^3,634 
29,027 

$1,007 
6,132 
3.433 

1,945 

2,565 
28,417 

19.74 
37-00 

53-22 

32.58 

116.90 
45-17 

b  June  30,  1914- 

c  October  31,  1921. 

d  March  31.  1914. 

e  Note  circulation  only,  excluding  gold  and  silver  certificates  which  are  covered 
dollar  for  dollar  by  specie,  for  which  they  are  exchangeable  upon  demand.  All  other 
notes  likewise  are  exchangeable  for  gold  upon  demand  and  have  a  substantial  gold 
cover. 


FRENCH  PUBLIC  FINANCE  [  I33 

In  the  table  on  page  132  the  statistics  in  regard  to  float- 
ing debts  and  currencies  are  compared.  It  will  be  noted  that 
by  no  means  the  entire  floating  debt  is  represented  by  a  corre- 
sponding increase  in  currency  issues.  Evidently  large  amounts 
of  treasury  bills  have  been  bought  for  investment  by  indi- 
viduals and  corporations. 

In  the  case  of  the  United  States  the  increase  in  the  note 
circulation  has  no  present  relation  to  the  floating  debt,  for, 
as  already  explained,  this  debt  is  practically  held  outside  of 
the  Federal  reserve  banks.  The  increase  in  note  issues  was 
probably  caused  more  by  financing  of  war  industries  and  of 
purchases  of  long  time  loans.  Once  issued  the  notes  have 
largely  kept  in  circulation,  although  there  has  been  a  pro- 
nounced shrinkage  in  the  amount  outstanding  during  the 
first  half  of  1922. 

In  the  cases  of  France,  Italy,  and  the  United  Kingdom 
there  also  has  been  a  moderate  reduction  in  outstanding  note 
issues  in  recent  months.  Germany,  alone,  of  the  nations  whose 
finances  we  are  reviewing,  is  still  keeping  the  presses  hot 
striking  oflF  increasing  issues  of  notes. 

Foreign   Debts 

Reference  has  already  been  made  to  the  fact  that  early 
in  the  war  France  fouiid  it  advisable  to  make  advances  of 
funds  to  certain  of  her  allies.  These  advances  for  the  period 
of  the  war  aggregated  upwards  of  three  billion  dollars.  The 
details  and  the  amount  of  the  advances  unsettled  on  Decem- 
ber 31,  192 1,  are  shown  in  the  following  table: 


^34] 


BANKERS  TRUST  COMPANY 


LOANS  IVIADE  BY  FRANCE  TO  ALLIES 

Prepared  by  the  Ministry  of  Finance 

To  December  31,  1921 
(In  francs — 000,000  omitted) 


Direct 
Loans 

Value  of 

Supplies 

Furnished 

Total 

Dollar 

Equivalent 
Par  of 

Exchange 
(00,000 

Omitted) 

Belgium     . 
Czechoslovak 
Esthonia    . 
Finland 
Greece   .    . 
Italy  .    .    . 
Jugoslovakia 
Lettonia    . 
Lithuania 
Poland       . 
Russia    .    . 
Roumania. 
Sundry  .    . 

da 

2,841 
54 

395 

732 

5 

4 

568 

4,139 

1,035 

15 

843 

520 

10 

2 

466 

932 

1,063 

6 

488 

1,320 

146 

14 

3,684 

574 

10 

2 

861 

932 

1,795 

II 

6 

1,056 

5,459 

1,181 

29 

736.8 

114,8 

2,0 

0,4 

174,2 

186,4 

359,0 

2,2 

1,2 

211,2 

1,091.8 

236,2 

5,8 

Total 

9,788 

5,812 

15,600 

3,122,0 

It  may  be  noted  that  in  addition  France  lent  to  the  United  States  1,983  million 
francs  which  were  settled  in  June,  192 1.  She  also  remains  Great  Britain's  creditor  for 
stocks  and  supplies  having  a  value  of  about  200  million  francs,  the  settlement  of  which 
is  now  being  arranged. 


FRENCH  PUBLIC  FINANCE  [  135 

It  will  be  noted  that  these  loans  fall  into  two  classes, 
direct  loans  and  what  may  be  called  accounts  in  progress  of 
adjustment.  These  latter  represent  the  value  of  supplies  fur- 
nished to  the  commissary  departments  of  the  armies  of  her 
allies  and  in  most  cases  will  be  settled  when  accounts  between 
the  armies  are  adjusted. 

The  first  of  the  direct  loans  were  made  as  early  as  the 
first  quarter  of  191 5,  when  Belgium  was  advanced  250  million 
francs  and  Serbia,  Greece  and  Montenegro  small  sums.  In 
February  of  that  year  an  agreement  was  reached  between 
France,  England  and  Russia  for  a  joint  mobilization  of  their 
financial  resources.  By  the  terms  of  the  agreement  equal 
shares  in  advances  to  allied  and  friendly  countries  were  to  be 
taken  by  each  party,  but  in  the  end  the  burden  seems  to  have 
fallen  upon  France  and  England.  Not  only  is  this  so,  but 
they  actually  arranged  to  make  loans  to  Russia  herself,  in 
order  to  enable  that  country  to  cope  with  the  difficulties  in 
which  she  was  involved  because  of  the  closing  of  her  ports. 
The  price  of  corn  and  other  goods  purchased  by  France  in 
Russia  was  to  be  charged  against  these  advances,  but  when 
the  Russian  debacle  came  the  French  government  was 
caught  with  net  advances  of  nearly  a  billion  dollars,  while 
the  French  people  saw  investments  in  Russia  to  the  extent 
of  around  three  and  a  half  billion  dollars  additional  crumble 
to  dust. 

To  show  the  inter-relation  of  the  war  debts  owed  by  and 
to  each  of  the  principal  allies  the  table  on  page  136  has  been 
prepared.  In  this  case  the  actual  dollar  advances  of  the 
United  States  have  been  taken,  while  the  debts  between  other 
countries  have  been  taken  as  if  incurred  on  a  gold  basis  and 
have  been  converted  into  dollars  on  such  basis.  There  is 
also  due  the  United  States  $i,i79,ocxd,ooo  for  accrued  interest. 


136 


BANKERS  TRUST  COMPANY 


INTER-NATION  INDEBTEDNESS  IN  1921  DUE  TO  THE 

WAR  OF  1914-1918 

Converted  into  Dollars  at  Exchange  Parities 

(In  dollars — 000,000  omitted) 


Due  from 

France 

United 
King- 
dom 

Italy 

Other 
Nations 

Total 

To 
United  States 

Government  Loans      .    . 
e\  Surplus  War  Supplies .    . 

Relief 

Market  Loans 

$ 

2,951 
407 

*  '  238 

$ 
4,166 

394 

$ 
1,648 

II 

$ 

670 

167 

84 

g    175 

$ 
9,435 

84 
818 

Total 

3,596 

4,560 

1,659 

<ii,096 

10,911 

United  Kingdom 

Government  Loans      .    . 

Relief 

Market  and  Bank  Loans . 

2,606 
364 



2,322 

&4,450 
39 

9,378 

39 

364 

Total 

2,970 

2,322 

4,489 

9,781 

France 

Government  Loans      .    . 
War  Supplies 

ci,956 
1,166 

i>956 
1,166 

Total 

03,122 

3,122 

Other  Nations 

252 

863 

34 

1,149 

/fGrand  Total    .... 

/6,8i8 

5,423 

4,015 

8,707 

24,963 

a  For  details  see  statement  on  page  134,  "Loeins  Made  by  France  to  Allies." 

b  Russia  $2,734  million. 

c  Russia  $1,092  million. 

d  There  is  also  about  $57  billion  due  to  the  U.  S.  Grain  Corporation, 

e  Official  U.  S.  figures  as  of  December  31,  1921  ("on  basis  of  cash  advances  less 
repayment  of  principal") — total  including  the  $57  billion  due  the  U.  S.  Grain  Corpo- 
ration $10,150,000,000.  The  interest  due  and  unpaid  up  to  and  including  last  interest 
payment  in  January,  1922,  is  officially  stated  to  be  $358  million  for  France,  $509  million 
for  the  United  Kingdom,  $202  million  for  Italy  and  $110  million  for  other  nations — 
total  $1,179  million.  Thus  the  U.  S.  Government  was  a  creditor  of  the  other  nations 
on  December  31,  1921,  in  the  sum  of  $11,329,000,000. 

/  See  table  page  203  for  details. 

g  Belgium  $99. 745. 000;  Russia  $75,000,000. 

h  These  figures  dififer  somewhat  from  those  given  in  the  table  on  the  opposite  page. 
The  differences  may  de  due  to  accrued  interest  being  included  in  one  set  of  returns 
and  not  in  the  other. 


FRENCH  PUBLIC  FINANCE 


137 


Germany's  foreign  debt  consists  principally  of  the  amount 
due  by  her  on  account  of  reparations.  As  this  subject  is 
fully  elucidated  in  the  chapter  just  preceding  this,  further 
comment  here  is  unnecessary. 

Some  Comparative  Debt  Statistics 

In  concluding  this  comparison  of  the  national  debts  of 
certain  of  the  European  nations  and  of  the  United  States  we 
present  a  table  giving  the  status  of  these  debts  at  the  latest 
dates  for  which  data  are  available.  The  data  are  given  con- 
verted to  dollars  at  parities  of  the  exchanges  and  at  the  average 
market  rates  of  March,  1922.   The  foreign  debts  are  taken  as 

NATIONAL  DEBTS 

Former  Entente  Allies,  United  States  and  Germany 

I9i3-'i4  vs.  i92i-'22 

(In  dollars — 000,000  omitted) 


Nation 

Total 

Funded 

% 
Total 

Float- 
ing 

% 
Total 

Foreign 

% 

Total 

Per 
Capita 

Belgium 

aDec.  31.  1913   .    • 

893 

752 

84.21 

103 

11-53 

38 

4,26 

128 

oDec.  31.  1921    .    . 

6.755 

1.037 

15-35 

5.204 

77-05 

S14 

7.60 

844 

6        do 

2,987 

411 

13-76 

2,062 

69.03 

S14 

17.21 

426 

oDec.  31.  1913    .    . 

6,492 

6,090 

93-81 

402 

6.IQ 

171 

aDec.  31.  1921    .    . 

51,674 

27,836 

53.86 

16,974 

32-84 

6,864 

J3-30 

1,360 

6           do 
Italy 

ajune  30,  1914   .    . 

27.758 

12,981 

46.77 

7.915 

28.51 

6,862 

24-72 

730 

3,034 

2,865 

94.43 

169 

5-57 

78 

cjune  30.  1922   .    . 

d20.457 

10,610 

51.87 

5, 802 

28.36 

4.045 

19.77 

538 

ft           do 

8,689 

2,809 

32.33 

1.792 

20.62 

4.088 

47.05 

228 

United  Kingdom 

oMar.  31,  1914   •    • 

3,440 

3.280 

95.35 

160 

4.65 

7S 

oMar.  31,  1922   .    . 

37,461 

27.163 

72.51 

5.001 

13.35 

S.297 

14-14 

814 

&           do 

34.251 

24.452 

71-39 

4.502 

13.14 

5.297 

15-47 

744 

United  States 

June  30,  1914  •    • 

1.338 

1.337 

99.93 

I 

-07 

13 

Mar.  31,  1922   ,    . 

23,407 

21,450 

91.63 

1.957 

8-37 

215 

Germany 

aMar.  31,  1914   .    . 

1,228 

1. 176 

9-56 

52 

4-24 

20 

aMar.  31,  1922   .    . 

86,128 

66,913 

22.31 

19.21S 

77.69 

c 

I  A3 5 

6           do 

1.303 

291 

22.31 

1,013 

77.69 

c 



22 

a  Exchange  parity — Belgium,  France  and  Italy,  19.3  cents;  United  Kingdom, 
$4.86;  Germany,  23.8  cents. 

b  Exchange  rate,  average  March,  1922 — Belgium,  8.43  cents;  France,  9  cents; 
Italy.  5.1 1  cents;  United  Kingdom,  $4-37K;  Germany,  0.36  cents. 

c  For  reparation  payments  see  chapter  ix. 

d  Estimated.   See  table,  page  138. 


138 


BANKERS  TRUST  COMPANY 


if  paid  off  at  par  of  exchange.  For  purpose  of  comparison  the 
pre-war  debts  also  are  given — in  dollars  at  par  of  exchange. 
The  following  tables,  comparing  in  national  currencies 
the  public  debts  of  Italy,  the  United  Kingdom,  the  United 
States,  and  Germany  for  each  of  the  years  since  1914,  it  is 
believed  will  be  found  of  interest.  They  are  compiled  from 
official  statements.  Similar  data  for  France  may  be  found 
on  pages  26  and  28. 

UNITED  STATES 

National  Debt 

(in  dollars — 000,000  omitted) 


Years  Ended  June  30 

1914 

191S 

1916 

1917 

1918 

1919 

1920 

1921 

1922 
May  31 

War  Debt 

Funded      

Floating 





1,466 
300 

9.314 
1,706 

20,726 
3.625 

20.409 
2,768 

20,154 
2,699 

20,282 
1.737 

Total  War  Debt  .    .   .    . 

Old  Funded  Debt 

Miscellaneous 

"968 
370 

970 
374 

972 
253 

1,766 

947 
263 

11,020 

966 
258 

24,351 

883 

248 

23,177 

884 
237 

22,853 

884 
239 

22,019 

Total  Debt 

1,338 

1,344 

1,225 

2,976 

12,244 

25,482 

24,298 

23,976 

23,139 

Floating  Debt — %  Total  Debt 

JO. 08 

13.93 

14.23 

11.39 

11.25 

7 .50 

For  history  of  the  debt  see  "Our  Public  Debt,"  Bankers  Trust  Company  Publication,  1919 

GERMANY 

National  Debt 

(In  marks — 000,000  omitted) 


Year  Ended  March  31 

1914 

191S 

1916 

1917 

1918 

1919 

1920 

1921 

1922 

Permanent  Loans    . 
Floating  Debt 

With  Interest.    .    . 

4,698 

220 

8,277 

1,220 
7.218 

28,299 

1.936 
9.261 

45,583 

4,716 
18,552 

64,123 

7,793 
33.028 

80,988 

11.408 
63,696 

80,376 

10,708 
91,500 

80,376 

80,376 

Without  Interest  . 

• 

Total  Floating  Debt  . 
Government  Circu- 
lating Notes   .   .    . 

220 

240 

8,438 

240 

11,197 

360 

23,268 
360 

40,821 

360 

75,104 
360 

102,208 

360 

183,000 
360 

281,148 

360 

Total  Debt     .   .    .    . 

5,158 

16,955 

39,856 

69,211 

105,304 

156,452 

182,944 

263,736 

361,884 

Floating  Debt 

%  Total  Debt    .    . 

4.26 

40-76 

28.09 

33.62 

38.76 

48.00 

55.87 

69.38 

77.69 

FRENCH  PUBLIC  FINANCE 


[139 


UNITED  KINGDOM 
a  National  Debt 
(In  sterling — 000,000  omitted) 


Year  Ended  March  31 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

192 1 

1922 

War  Debt 

Funded      

Floating 

Foreign 

33 

399 
95 

1.151 

587 

SI 

2,938 

681 

51 

3,371 

1,166 

995 

4.391 
1.412 
1.293 

4.904 
1.312 
1.279 

4.805 
1.275 
1,162 

5.207 
1,029 
1,090 

Total  War  Debt      .    .    . 

Old  Funded  Debt 

Terminal  Annuities 

Other  Capital  Liabilities    .    . 

33 

587 
30 
56 

494 

583 
28 
57 

1,789 

318 

26 

57 

3,670 

318 
24 
52 

5,532 

318 

22 

49 

7,096 

318 
21 
46 

7,495 

31S 

19 

47 

7,242 

315 

17 

49 

7,326 

31S 

17 

50 

6  Total  Debt 

Floating  Debt 

%  Total  Debt 

706 

4.67 

1,162 
8.17 

2,190 
26.80 

4,064 

16.73 

5,921 

i9.6g 

7,481 

18.87 

7,876 

16.16 

7,623 
16.73 

7,708 
13.35 

a  For  history  of  the  debt  and  other  details,  see  "English  Public  Finance,"  Bankers  Trust 
Company  Publication,  1920. 

b  The  "Currency  Notes"  of  which  £300,351.000  were  outstanding  on  March  31,  1922,  are, 
of  course,  a  debt  of  the  nation,  but  as  they  are  covered  to  the  extent  of  15-9%  by  gold  and 
Bank  of  England  notes  and  84.1%  by  government  securities  included  in  the  debt  statement 
they  do  not  constitute  a  net  addition  to  the  debt  as  above  stated. 


ITALY 

National  Debt 

(In  lire — 000,000  omitted) 


Years  Ended  June  30 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

1921 

Funded  Debt     

Floating  Debt 

Treasury  Bills 

Note  Circulation 

State  Currency 

Bank  Notes  Advanced     .    . 

14,840 

380 
499 

15,927 

401 

766 
1.613 

19,791 

786 

1,135 
2,158 

24,658 
3.733 

1,460 
3.295 

31,944 

7.508 

2,113 
6,482 

34,100 

15,500 

2,522 
8,026 

52,342 

9,250 

2,538 
10,333 

54,973 

19.494 

2,544 
8,024 

Total  Notes 

499 

2.379 

3.293 

4.755 

8,595 

10,548 

12,871 

10,568 

Total  Floating  Debt     .    . 

879 

2,780 

4,079 

8,488 

16,103 

26,048 

22,121 

30,062 

Total  Domestic  Debt   .    . 

Foreign  Credits  at  Par  Value  of 

Lira 

15.719 

18,707 

23.870 
2,276 

33.146 
5,303 

48,047 
11,471 

60.148 
19,200 

74.463 
20,266 

85.035 
020,958 

Total  Debt 

15,719. 

18,707 

26,146 

38,449 

59,518 

79,348 

94,729 

105,993 

Floating  Debt — %  Total  Debt  . 

5.50 

14.85 

15.60 

22.07 

27.06 

32.82 

23.35 

2^.j6 

a  If  expressed  in  lire  at  average  rate  of  exchange  for  March,  1922  this  amount  would 
be  raised  to  about  80,000  million;  the  gross  debt  in  paper  lire  would  then  stand  at  about  165,000 
million,  plus  the  deficit  of  about  5,000  million  for  the  year  ending  June  30,  1922,  say  a  total 

DEBT  OF  ABOUT   X70,OOO  MILLION   PAPER  LIRE  AS  OF   JUNE   30,  1922. 


Chapter  XI 

The  Indemnity  or  War- Fine  of  1871 

(When  the  Shoe  was  on  the  Other  Foot) 

^  I  ^HE  preliminaries  of  peace  following  the  Franco- Prussian 
-*"  War  of  1 870-1 871,  signed  at  Versailles  on  the  26th  day 
of  February,  1871,  stipulated  for  the  payment  of  an  indem- 
nity by  France  to  Germany  of  five  milliards  of  francs — one 
billion  dollars  American  money.  One  milliard  was  to  be  paid 
in  1 87 1  and  the  remainder  within  a  period  of  three  years.  No 
mention  was  made  of  the  nature  of  the  money  in  which  pay- 
ment was  to  be  made,  but  in  subsequent  agreements  it  was 
provided  that  payments  should  be  made  either  in  gold  or  sil- 
ver; in  notes  of  the  Bank  of  England,  of  the  Bank  of  Prussia, 
of  the  Bank  of  Holland  or  of  the  National  Bank  of  Belgium, 
or  in  sight  bills  or  prime  bills  of  exchange  drawn  upon  these 
same  countries.  Before  payments  became  "liberative,"  that 
is  effective  to  provide  for  the  withdrawal  of  the  German 
army  of  occupation,  they  must  be  converted  into  German 
thalers  or  florins.  The  conversion  value  as  between  French 
and  German  moneys  was  placed  at  3  francs  75  centimes  for 
the  florin.  The  French  could  make  "liberative"  payments 
only  in  German  moneys  or  drafts  on  Germany.  If  they  paid 
in  the  moneys  of  any  of  the  other  countries  named  above  or 
in  drafts  thereon,  the  Germans  were  to  charge  them  with 
the  expense  of  conversion.  We  will  see  later  in  the  narrative 
how  this  worked  out. 
140] 


FRENCH  PUBLIC  FINANCE  [  I4I 

The  indemnity  was  to  be  paid  as  follows: 

Thirty  days  after  the  re-establishment  of  order  Francs 
in  Paris  (for  it  will  be  remembered  that  Paris 
was  then  in  the  throes  of  civil  war  with  the 

commune) 500,000,000 

In  the  course  of  187 1 1,000,000,000 

The  first  of  May,  1872 500,000,000 

The  second  of  March,  1874 3,000,000,000 


5,000,000,000 


As,  on  account  of  the  transfer  of  Alsace  and  Lorraine  to 
Germany,  the  French  railroad  company,  Cie.  Chemin  de  fer 
de  L'Est,  was  deprived  of  the  portion  of  its  system  located  in 
these  departments,  the  Germans  agreed  to  accept  such  lines 
at  a  value  of  325  million  francs  as  a  payment  on  account  of 
the  indemnity  and  there  was  also  a  small  balance  of  98,400 
francs  found  due  from  the  Germans  to  the  City  of  Paris, 
when  accounts  with  that  city  were  adjusted,  which  also  was 
allowed  as  a  credit  on  the  account.  This  left,  in  round  figures 
4,675  million  francs  to  be  paid  in  German  moneys  or  their 
equivalent.  At  first  the  Germans  would  not  consent  to  accept 
payments  at  any  other  times  than  those  set  in  the  treaty,  but 
by  a  subsequent  modification  it  was  arranged  that  the  pay- 
ment of  the  last  three  milliards  might  be  anticipated  at  the 
rate  of  100  million  a  month,  by  giving  one  month's  previous 
notice,  but  payments  on  account  were  not  allowed  at  any 
time. 

The  French  government  was  obliged  to  pay  on  the  third 
of  March  of  each  year  interest  at  the  rate  of  5%  a  year  upon 
the  last  three  milliards.  These  interest  payments  brought  up 
the  total  of  the  indemnity  payments  to  5,301  million  francs, 
to  which  must  be  added  the  cost  of  exchange   operations. 


142  ]  BANKERS  TRUST  COMPANY 

some   14,600,000  francs.    When  the  accounts  were  finally- 
closed  it  was  found  that  payments  had  been  made  as  follows: 

Credit  for  Alsace-Lorraine  R.R.,  &c.  .  .  .  325,098,400 
Bank  notes,  German  moneys,  gold  and  silver  .  742,334,079 
Bills  of  Exchange 4,248,326,374 


5»3i5,758,853 


The  railroad  was  taken  at  a  valuation  by  Germany,  but  it 
represented  a  capital  outlay  so  far  as  France  was  concerned 
for  she  had  to  indemnify  the  owners  by  issuing  to  them  her 
government  securities.  It  will  be  noted  that  the  bulk  of  the 
payment,  substantially  80  per  cent.,  was  made  in  bills  of 
exchange.  By  the  treaty  terms  these  were  required  to  be 
reduced  to  German  values  before  they  would  become  "liber- 
ative."  At  first  the  foreign  bills  were  turned  over  to  the 
Germans  and  were  by  them  converted  into  German  funds  at 
a  cost  for  the  first  two  milliards  of  some  11,360,000  francs. 
The  French  then  determined  to  make  the  conversion  them- 
selves with  the  result  that  the  expense  of  so  doing  for  the  last 
three  milliards  was  only  277,637  francs. 

How  was  this  great  mass  of  bills  accumulated  in  so  short 
a  time?  M.  Leon  Say,  in  his  official  report  to  the  National 
Assembly  from  which  these  facts  are  taken,  tells  us  that  this 
was  accomplished  in  two  ways.  In  connection  with  the  nego- 
tiation of  the  loans  the  government  offered  to  receive  in  pay- 
ment approved  bills  of  exchange  at  liberal  rates.  M.  Say  tells 
us  that  by  the  original  subscriptions  and  by  subsequent  pay- 
ments connected  therewith  the  sum  of  1,773  million  francs 
was  so  obtained. 

In  June,  1871,  a  financial  agency  was  opened  in  London 
which  received  subscriptions  to  the  loans  and  conducted 
important  operations  in  exchange,  with  great  success.    The 


FRENCH  PUBLIC  FINANCE  [  I43 

French  government  became  for  the  time  being  the  most 
important  factor  in  the  exchange  market,  accumulating  ex- 
change in  anticipation  of  payments,  selHng  bills  on  London 
and  other  centres  and  buying  bills  on  Germany. 

In  these  operations  the  government  was  greatly  aided  by 
a  syndicate  of  bankers  comprising  not  only  all  of  the  great 
banking  houses  of  Europe,  to  the  extent  of  some  55,  but 
through  these  houses  many  others  of  less  importance.  Much 
of  the  success  of  the  operation  is  attributed  by  M.  Say  to  the 
cooperation  of  the  banking  group.  This  group  directly  pro- 
vided 700  million  in  bills  and  "became  beaters-up  of  bills  of 
exchange  on  behalf  of  France,  and  propagators  of  her  credit." 
Through  this  group  and  through  special  agencies  created  in 
London,  at  Brussels,  at  Amsterdam,  at  Hamburg,  at  Frank- 
fort and  at  Berlin  the  French  treasury  accumulated  some 
5,863  million  francs  in  bills  (included  in  this  amount  are  the 
amounts  directly  received  from  subscribers  and  from  the 
underwriting  syndicate)  in  order  to  obtain  the  4^^  milliards 
required  for  the  settlement. 

The  bills  acquired  were  in  seven  different  currencies  and 
they  were  of  every  conceivable  amount  from  1000  francs  to 
5,000,000.  All  told  there  were  120,000  of  them.  Every  pos- 
sible kind  of  business  transaction  must  have  been  represented 
in  this  accumulation  of  bills  from  all  parts  of  the  world. 
There  were  bank  credits,  circulation  bills,  settlements  for 
goods  delivered,  remittances  on  account  of  future  purchases, 
drafts  against  interest  and  dividend  payments  due  on  bonds 
and  stocks,  as  well  as  special  paper  created  for  the  occasion. 

We  have  not  the  space  nor  would  it  interest  the  general 
reader  to  discuss  all  of  the  details  of  the  market  operations 
by  which  this  great  transaction  was  effected.  We  will  simply 
note  in  concluding  this  phase  of  the  subject  that  the  form  in 


144]  BANKERS  TRUST  COMPANY 

which  the  total  payment  finally  reached  Germany  was  as  fol- 
lows: 

(00,000  omitted) 
France  herself  provided  in  her  own  notes  and  coin  .        637,3 
German  money  and  bills  on  Germany  produced    .    .     3,170,3 
Bills  on  England,  Belgium  and  Holland  produced.    .     1,183,5 

4.991,1 
To  which  must  be  added  the  credit  a/c  Eastern  R.R.       325,0 

5,316,1 

The  exchange  operations  were  facilitated  by  the  fact  that 
the  balance  of  German  trade  was  in  favor  of  London  and  also 
by  the  fact  that  to  meet  the  expenses  of  the  war  Germany  had 
borrowed  large  amounts  in  London  on  short  term  securities 
which  loans  were  paid  during  1872  and  1873  with  the  pro- 
ceeds of  the  indemnity. 

The  large  transactions  in  exchange  were  felt  in  all  financial 
centres  and  especially  in  the  London  market.  There  prices  of 
bills  on  Paris  naturally  rose,  while  conversely  prices  of  bills 
on  Berlin  declined.  The  first  heavy  purchases  carried  the 
price  of  Paris  bills  up  about  2^2  per  cent.,  while  Berlin  bills 
declined  about  i^  per  cent.  This  was  during  the  latter  half 
of  1873.  Thereafter  the  banking  syndicate  assisting  France 
seemed  to  get  better  control  of  the  market.  Prices  of  French 
exchange  advanced  when  bills  were  being  accumulated  and  in 
the  intervals  of  payments  prices  declined.  The  respective 
quotations  gradually  tended  toward  parity  and  finally  when 
the  transaction  was  completed  in  the  latter  part  of  1873  t>oth 
the  French  and  German  quotations  dropped  together  and  in 
1874  French  exchange  went  below  parity  and  German  above. 

As  a  result  of  the  able  manner  in  which  the  operation  was 
handled  by  the  French  treasury  the  Germans  were  paid  the 
last  franc  on  the  31st  of  August,  1873,  six  months  earlier  than 


FRENCH  PUBLIC  FINANCE  [  I45 

the  day  set  in  the  treaty.  France  was  thus  freed  from  German 
domination  and  in  a  position  to  take  up  the  natural  course 
of  her  daily  life. 

Where  Did  the  Resources  Come  From 
With  Which  to  Pay  the  Indemnity? 

It  is  pertinent  to  inquire  as  to  the  sources  from  which 
came  the  real  capital  with  which  to  effect  these  payments  and 
within  so  short  a  time.  Upon  this  question  there  has  been 
much  discussion.  French  financiers  of  the  time  were  not  at  all 
clear  about  the  matter  in  their  own  minds.  One  thing  is  evi- 
dent, the  reserve  strength  of  the  French  people  due  to  their 
proverbial  habits  of  thrift  is  what  saved  the  day.  We  have 
seen  that  325  million  francs  were  paid  by  crediting  to  the 
account  the  agreed  value  of  the  lines  of  the  Eastern  Railroad 
in  Alsace-Lorraine;  some  742  million  francs  were  paid  in  bank 
notes  or  specie.  525  million  of  this  sum  came  from  the  Bank 
of  France  as  a  loan,  125  million  which  the  Germans  accepted 
in  notes  at  par  and  400  million  in  gold.  As  to  the  remainder 
of  the  specie  and  notes  of  other  banks  and  the  four  and  a 
quarter  milliards  represented  by  bills  of  exchange,  it  is  be- 
lieved that  a  very  substantial  sum  was  derived  from  the  sale 
of  securities  of  foreign  states,  municipalities  and  corporations 
owned  in  France  and  by  the  investment  in  French  funds  of 
the  income  from  such  of  these  securities  as  were  not  sold. 
The  foreign  subscriptions  to  these  two  great  loans  of  libera- 
tion amounted  to  around  two  milliards  of  francs,  although 
subsequently  most  of  the  rentes  sold  abroad  were  reabsorbed 
by  the  French  people  themselves.  Therefore  it  seems  reason- 
able to  assume  that  the  funds  for  this  payment  came  chiefly 
from  the  sale  of  foreign  securities  held  in  France,  from  the 


146  ]  BANKERS  TRUST  COMPANY 

income  from  such  securities  not  sold,  and  from  the  diversion 
into  the  purchase  of  rentes  of  sums  theretofore  employed 
abroad.  We  are  not  told  whether  there  were  any  loans  made 
by  the  French  banks  to  private  investors,  for  the  purchase  of 
war  loans,  but  if  our  recent  experience  in  connection  with  war 
loan  financing  counts  fbr  anything,  may  we  not  assume  that 
the  French  banks  probably  made  considerable  advances  to 
their  clients  which  were  used  to  purchase  war  securities  and 
afterwards  were  liquidated  out  of  the  savings  of  subsequent 
months  over  a  period  of  possibly  two  or  three  years.  In  the 
event  that  such  loans  were  made  they  could  have  readily  been 
made  available  to  the  government  through  bank  drafts.  In 
fact  we  are  told  that  direct  drafts  on  Germany  on  account  of 
merchandise  exports  from  France  accounted  for  a  consider- 
able portion  of  the  exchange  acquired  by  the  government  in 
connection  with  its  operations. 

Economic  Effects  of  the  Transfer  of  Capital 
upon  France  and  Germany 

It  remains  now  to  consider  the  effect  of  this  great  transfer 
of  capital  upon  the  country  which  was  robbed  and  upon  its 
despoiler. 

Statistics  of  internal  and  foreign  trade  show  that  this  was 
a  time  of  prosperity  in  France.  Although  France  parted  with 
upwards  of  500  million  francs  in  specie  in  payment  of  the 
indemnity,  say  273  million  in  gold  and  239  million  in  silver, 
yet  the  specie  reserve  of  the  Bank  of  France  which  at  the 
beginning  of  1870  amounted  to  1,203  million  francs,  actually 
increased  to  1,331  million  in  December,  1874,  although  in  the 
interval  it  had  fallen  to  505  million.  Norman  Angell  in  "The 
Great  Illusion"  sums  up  the  economic  results  of  the  period  as 
follows: — "The  decade  from   1870-1880  was  for  France  a 


FRENCH  PUBLIC  FINANCE  [  I47 

great  recuperative  period,  although  for  other  nations  in 
Europe  one  of  great  depression,  notably,  after  the  boom  of 
1872,  for  Germany."  However,  while  this  is  a  true  state- 
ment, it  by  no  means  follows  that  the  boom  of  1872  was  due 
to  the  indemnity  payments  received  or  anticipated,  or  that 
the  subsequent  reaction  was  due  to  over-speculation  encour- 
aged thereby.  The  fact  is  that  a  trade  reaction  was  due  at 
about  that  time  and  that  the  collapse  of  the  boom  caused  by 
the  world-wide  industrial  expansion  of  the  previous  few  years 
was  felt  throughout  the  civilized  world,  not  in  Germany  alone. 
The  gathering  of  the  money  for  the  indemnity  to  the  extent 
that  it  forced  the  French  to  sell  foreign  securities  enabled 
them  to  realize  on  their  securities  at  boom  prices  and  to  con- 
vert the  proceeds  into  their  own  rentes,  while  it  brought  the 
capital  transferred  to  Germany  into  that  market  at  a  time 
when  it  added  fuel  to  the  flames.  However  this  may  be,  we 
are  not  inclined  to  agree  with  the  writers  of  the  period  who 
claimed  that  the  receipt  of  the  indemnity  payments  caused 
over-commercial  expansion  in  Germany  and  subsequent  loss- 
es due  to  the  collapse  of  this  speculation. 

The  Use  Made  by  Germany 
of  the  Indemnity  Receipts 

In  closing  this  review  it  will  be  of  interest  to  know  the  use 
to  which  the  German  government  put  its  income  from  the 
indemnity.  In  addition  to  the  indemnity  and  the  interest 
thereon  totalling  5,301  million  francs  and  the  200  million  in- 
demnity forced  from  the  City  of  Paris,  taxes  collected  in  the 
occupied  portions  of  France,  the  charge  to  France  for  the 
expenses  of  the  army  of  occupation  and  fines  and  penalties 
collected  from  individuals  and  from  other  cities  than  Paris 
are  estimated  to  have  been  equivalent  to  nearly  another  mill- 


148  ]  BANKERS  TRUST  COMPANY 

iard,  bringing  up  the  total  payments  of  a  direct  and  indirect 
character  possibly  to  6,500  million  francs.  However,  a  large 
part  of  these  payments  was  probably  expended  in  France  and 
did  not  directly  reach  the  German  exchequer.  We  may  place 
such  amount  according  to  French  authorities  at  substantially 
5,500  million  francs. 

A  German  writer  of  the  period,  the  well  known  professor 
of  economics.  Doctor  Adolph  Wagner,  in  an  article  on  the 
finances  of  the  German  Empire  published  in  1874,  places  the 
sum  received  by  Germany  at  1,462  million  thalers,  equivalent 
at  3  francs  75  centimes  to  5,557  million  francs.  Of  this 
amount  he  credits  200  million  francs  to  Paris,  5,301  million 
to  France  for  principal  and  interest  of  the  indemnity  and 
56X  million  to  other  payments  received,  so  that  French  and 
German  statements  as  to  the  amounts  paid  and  received  are 
substantially  in  accord.  Of  the  total  sum  about  two  and  a 
half  milliards  was  directly  appropriated  by  the  new  German 
Empire  and  about  three  milliards  was  distributed  to  the 
states;  582  million  going  to  the  South  German  States  in  vary- 
ing amounts  and  the  remainder  to  the  old  North  German 
Bund — or  Confederation — in  which  Prussia  was  the  chief 
factor.  This  was  because  of  the  fact  that  the  empire  was  not 
established  until  about  the  end  of  the  war  with  France.  It 
will  be  remembered  that  Emperor  William  was  crowned  in 
the  Hall  of  the  Mirrors  at  Versailles  on  January  i8th,  1871. 
This  was  one  way  which  the  Germans  took  to  humiliate  the 
French.  The  chief  military  burden,  therefore,  fell  on  the  old 
North  German  Bund. 

In  the  following  table  based  on  Wagner's  figures  the  sta- 
tistics for  the  Empire  and  for  the  North  German  Bund  are 
combined  in  order  to  give  a  better  idea  of  the  disposition 
which  was  made  by  Germany  of  the  French  francs. 


FRENCH  PUBLIC  FINANCE  [  I49 

GERMANY'S  USE  OF  INDEMNITY 
(in  millions  of  francs) 
War  Expenses 

Empire 274 

North  German  Bund 1,415        1,689 

Indemnities  and  Pensions 

Empire 924 

North  German  Bund 40  964 

Military  Power — adding  to;  including  fortifica- 
tions, &c. 

Empire 697 

North  German  Bund 450       1,147 

Sundry 

Empire 137 

North  German  Bund 6  143 

Railroads 
Purchase  and  rehabilitation — chiefly  Alsace- 
Lorraine 539 

Total  Specified  Uses 4,482 

Unspecified 

North  German  Bund 503 

South  German  States 582 

Grand  Total 5,567* 

♦The  difference  of  10  million  francs  between  the  statements  of  receipts  and  expendi- 
tures is  as  given  by  Prof.  Wagner. 

It  will  be  noted  that  some  3,800  million  francs,  at  least, 
were  devoted  to  military  purposes  and  may  therefore  be 
classed  as  unproductive  expenditure,  while  by  the  French  the 
entire  sum  was  being  used  productively.  In  the  amount 
which  we  have  listed  in  the  table  under  "Sundry"  there  is 
included  an  appropriation  of  30  million  francs  for  constructing 
a  palace  for  the  German  Imperial  Parliament,  while  in  the 


150]  BANKERS  TRUST  COMPANY 

provision  for  increasing  the  military  power  there  is  an  appro- 
priation of  150  milHon  francs  for  the  "war  chest."  This  sum 
is  reported  to  have  been  kept  intact  in  gold  in  the  Julius 
Tower  at  Spandau  and  is  supposed  to  have  been  nearly- 
doubled  in  1913,  only  to  be  quickly  dissipated  in  the  unpre- 
cedented cost  of  the  recent  war. 

In  the  opinion  of  the  French  economist,  M.  Wolowski,  one 
of  the  most  important  benefits  accruing  to  Germany  from  the 
indemnity  payments  was  that  she  was  greatly  aided  in  putting 
her  currency  on  a  gold  basis,  by  the  gold  which  she  received 
in  payment  of  the  indemnity.  He  states  that  nearly  a  mill- 
iard of  French  gold  was  thus  made  available  for  this  purpose. 
This  was  not  all  directly  received  from  France  but  was  paid 
over  to  Germany  in  connection  with  exchange  operations 
resulting  from  the  indemnity  financing,  or  was  bought  by 
Germany  with  silver  or  other  resources  which  the  receipt  of 
the  indemnity  made  available. 

The  Remarkable  Economic  Recovery 
of  France  After  the  War 

Sir  Robert  GifFen,  the  eminent  English  statistician,  esti- 
mated that  in  1 870  the  gross  annual  income  of  theFrench  people 
was  about  15  milliards.  M.  Bonnet,  a  dependable  French 
financial  writer  of  the  period,  placed  the  amount  at  18  to  20 
milliards  and  the  annual  savings  of  France  before  the  War  of 
1 870  at  3  miUiards  and  expressed  the  behef  that  notwithstand- 
ing the  losses  due  to  the  war  and  the  increased  taxes  this  rate 
of  saving  was  maintained  after  the  war. 

Statistics  show  that  in  the  decade  between  1870  and  1880 
in  national  wealth,  in  national  income,  in  commerce,  in 
manufacturers,  mining,  agriculture,  carrying  trade,  and 
banking  France,  notwithstanding  the  loss  of  two  of  her  finest 


FRENCH  PUBLIC  FINANCE  [  I5I 

provinces  and  the  milliards  dissipated  as  a  result  of  the  war, 
remarkably  increased  the  sum  of  her  industry.  Every  branch 
of  industry,  except  agriculture,  shared  in  this  advance.  Agri- 
culture was  set  back  because  of  the  loss  to  the^^ngyafjists 
oh  account  ol  the  phylloxera. 

The  nation  everyday  was  becoming  richer  and  more 
prosperous.  If  an  occasional  bad  year  occurred  the  people 
continued  to  live  comfortably  because  of  their  accumulated 
savings. 

The  immense  reserve  wealth  of  the  French  people  in  1870 
and  their  indomitable  energy  and  thrift  made  possible  this 
quick  recovery  from  the  war  with  Prussia. 


Chapter  XII 
How  France  is  Governed 

THE  French  form  of  government  may  be  described  as  a 
highly  centralized  bureaucratic  government  dominated 
entirely  from  Paris  and  controlled  by  the  ministry,  that  is 
subject  to  change  at  the  will  of  the  chamber  of  deputies. 

In  a  general  way  it  resembles  the  English  form  of  parlia- 
mentary government.  There  is  a  marked  difference,  however, 
in  the  procedure  of  England  and  her  dominions  on  the  one 
hand  and  in  that  of  France  upon  the  fall  of  a  minister.  Under 
British  methods  a  change  in  ministers  involves  an  imme- 
diate appeal  to  the  people  and  a  new  election  of  members  of 
the  house  of  commons.  No  such  thing  happens  in  France. 
The  members  of  the  lower  house,  the  deputies  as  they  are 
called,  serve  out  their  allotted  time  of  four  years,  no  matter 
how  many  times  the  ministry  changes. 

French  cabinets  may  change  but  parliament  goes  on  its 
way  with  unchanged  personnel.  Therefore  changes  in  the 
ministers  do  not  reflect  directly  the  will  of  the  people  as 
expressed  at  the  polls,  but  only  the  will  of  their  represen- 
tatives— the  deputies.  The  people  can  express  their  will 
directly  only  once  in  four  years  as  is  the  case  in  the  United 
States. 

The  President 

Under  the  French  constitution  the  president  is  elected  for 
a  term  of  seven  years  by  the  senate  and  deputies  convened  at 
Versailles  as  a  national  assembly.  Any  French  citizen  is 
eligible  to  the  office  without  age  limitation,  provided  he  is  not 

152] 


FRENCH  PUBLIC  FINANCE  [  1 53 

a  member  of  a  royal  family  which  has  once  ruled  over 
France.  The  president  has  a  salary  of  600,000  francs,  and 
a  large  expense  fund.  The  nation  has  put  at  his  disposal  two 
official  residences,  the  Palace  of  the  filysee  in  Paris  dating 
from  the  beginning  of  the  eighteenth  century  and  the  Chateau 
of  Rambouillet  which  has  a  splendid  park  and  forest. 

The  president  is  eligible  to  reelection  but  in  only  one 
case,  that  of  M.  Grevy  in  1885,  has  any  president  served  for 
more  than  one  term. 

The  president  presides  over  the  council  of  ministers  and 
appoints  the  president  of  that  council.  He  supervises  and 
secures  the  execution  of  the  laws.  He  appoints  all  civil  and 
military  officers.  He  directs  the  armed  forces  of  the  nation, 
grants  pardons,  presides  over  public  ceremonies,  receives  the 
diplomatic  agents  of  foreign  powers  and  constitutes  the 
senate  as  a  high  court  of  justice  to  try  persons  accused  of 
attempts  upon  the  safety  of  the  state.  He  convokes  the 
parliament  and  terminates  their  sessions  and  can  dissolve 
the  chamber  of  deputies,  but  only  by  the  consent  of  the 
senate.  The  president  negotiates  and  ratifies  treaties  with 
foreign  powers,  but  treaties  of  peace  and  commerce  and  those 
which  involve  the  finances  of  the  state  or  the  persons  and 
property  of  Frenchmen  residing  abroad  must  be  submitted  to 
parliament  for  approval.  The  president  can  declare  war 
but  only  with  the  assent  of  the  two  chambers  of  parliament. 
He  may  be  impeached  by  the  deputies  and  tried  by  the 
senate. 

The  president's  office  is  a  very  important  and  dignified  one, 
but  his  powers  are  so  hedged  around  that  he  has  very  little 
direct  right  of  action.  However,  the  extent  to  which  he  can 
make  himself  felt  in  connection  with  the  government  of  the 
nation  depends  largely  upon  his  personality.    Responsibility, 


154  ]  BANKERS  TRUST  COMPANY 

however,  is  vested  in  the  ministers  through  whom  practically 
all  action  is  taken. 

The  Ministers 

The  number  of  ministers  is  not  determined  by  law  and 
varies  from  time  to  time.  At  the  close  of  1921  there  were 
some  fourteen  ministers  as  shown  by  the  chart  at  the  end  of 
this  chapter.  In  addition  to  the  ministers  holding  portfolios 
there  were,  during  the  war,  one  or  more  ministers  without 
portfolio.  There  are  several  under-secretaries  of  state  who 
perform  ministerial  functions.  When  there  is  a  change  of 
government  the  President  of  the  Republic  appoints  the 
president  of  the  council  of  ministers  whose  relations  to  the 
government  are  similar  to  those  of  the  English  premier 
although  the  title  of  premier  does  not  exist  in  France.  This 
appointment  is  made  only  after  consultation  with  public  men 
who  seem  best  quahfied  to  advise  upon  the  situation, — 
notably  the  presidents  of  the  two  chambers  of  parliament. 
It  follows  that  the  President  of  the  Republic  has  not  entire 
freedom  of  choice  as  he  must  choose  as  president  of  the  council 
of  ministers  a  man  who  has  the  confidence  of  the  majority 
in  the  chambers.  After  the  president  of  the  council  of 
ministers  is  appointed  he  selects  his  colleagues  as  he  sees 
fit  and  they  in  their  collective  capacity  compose  the  cabinet 
which  when  it  meets  formally  is  known  as  the  council  of 
ministers. 

The  Council  of  Ministers:  Formal  meetings  of  the  min- 
isters are  presided  over  by  the  President  of  the  RepubHc. 
Such  meetings  are  held  about  twice  a  week.  When  the 
President  of  the  Republic  does  not  preside  the  meetings  are 
known  as  cabinet  councils.  The  president  of  the  council  of 
ministers  may  then  preside  or  even  some  other  minister. 


FRENCH  PUBLIC  FINANCE  [  1 55 

Not  only  does  the  constitution  make  the  ministers  "collec- 
tively" responsible  to  parliament,  but  it  provides  that  certain 
acts  must  be  performed  in  the  council  of  ministers  and  that 
during  a  presidential  interregnum  the  council  of  ministers 
shall  be  invested  with  the  executive  power.  Likewise  many 
important  laws  authorize  the  issuing  of  decrees  in  the  council 
of  ministers.  Presumably  all  questjions  of  general  policy  are 
laid  before  the  council  of  ministers.  Its  proceedings  are 
secret.    There  is  no  secretary  and  no  record. 

Ministerial  Responsibility:  The  constitution  provides  that 
the  ministers  shall  be  collectively  responsible  to  parliament 
for  the  general  policy  of  the  government  and  individually  for 
their  personal  acts.  In  other  words  they  can  remain  in  office 
only  so  long  as  their  direction  of  affairs  meets  with  parlia- 
mentary approval.  While  it  is  to  the  chambers,  according  to 
the  constitution,  that  the  ministers  are  politically  responsible, 
yet  in  practice  the  chamber  of  deputies  has  established  its 
ascendancy.  Still  cabinets  have  been  occasionally  forced  to 
resign  because  of  disagreement  with  the  senate.  The  instabil- 
ity of  French  ministries  is  proverbial.  It  is  estimated  that 
the  average  Hfe  of  a  ministry  prior  to  the  war  of  1914-1918 
was  less  than  nine  months. 

Legislative  Rights  and  Duties:  The  constitutional  law  pro- 
vides that  ministers  shall  have  the  right  of  entry  in  the  two 
chambers  and  that  they  must  be  heard  when  demanding  a 
hearing.  Thus  a  minister  who  is  a  senator  may  speak  in 
the  chamber  of  deputies;  a  minister  who  is  a  deputy  may 
speak  in  the  senate;  and  a  minister  who  is  neither  senator 
nor  deputy  can  be  heard  in  either  chamber.  Thus  ministers 
intervene  in  the  work  of  legislation.  They  support  the  project 
of  laws  which  they  have  introduced.   They  give  their  advice 


156]  BANKERS  TRUST  COMPANY 

as  to  proposals  initiated  by  parliament;  they  oppose  resolu- 
tions and  amendments  of  which  they  do  not  approve.  As  it 
would  be  difficult  for  them  to  have  cognizance  of  all  matters 
in  debate,  they  may  be  assisted  by  administrative  delegates 
appointed  by  a  decree  of  the  President  of  the  Republic  for 
the  discussion  of  any  particular  law  projected. 

Ministers  being  responsible  to  the  chambers  may  be 
individually  questioned  and  the  entire  body  of  ministers  may 
be  interpellated  in  regard  to  the  acts  of  their  administration. 
If  the  interpellation  involves  the  general  policy  of  the  cabinet 
and  action  of  the  chamber  thereon  is  unfavorable,  the  entire 
ministry  is  under  the  moral  obligation  of  resigning. 

The  Parliament 

The  parliament  is  composed  of  the  senate  and  of  the 
chamber  of  deputies. 

The  Senate:  Senatorships  are  apportioned  among  the 
several  departments  roughly  according  to  population,  the 
number  varying  from  i  to  10.  Senators  are  chosen  by  an 
electoral  college  formed  of  the  deputies  of  the  department 
where  the  election  is  to  occur,  the  members  of  the  department 
general  council,  the  members  of  the  district  councils  in  the 
department,  and  finally  the  delegates  to  the  municipal 
councils  within  the  department.  The  senate  therefore  not 
only  represents  the  individual  interests  of  French  citizens, 
but  also  the  collective  interests  of  the  various  political 
divisions  of  the  state. 

Theoretically  the  senate  has  coordinate  powers  with  those 
of  the  chamber  of  deputies  except  in  the  case  of  money  bills, 
the  right  of  initiative  in  regard  to  which  is  reserved  to  the 
deputies.  The  senate  may  act  as  a  high  court  of  justice  in 
case  of  the  impeachment  of  the  President  of  the  Republic  or 


FRENCH  PUBLIC  FINANCE  [  I57 

of  ministers  by  the  chamber  of  deputies  and  in  case  of  serious 
offenses  against  the  safety  of  the  state. 

The  Chamber  of  Deputies:  This  chamber  is  at  present 
composed  of  626  members,  but  under  the  operation  of  the 
electoral  law  of  19 19  which  does  not  become  fully  operative 
until  the  general  legislative  election  in  1924,  it  is  expected 
that  after  that  year  the  number  of  deputies  will  be  only  about 
530.  Deputies  are  elected  for  a  term  of  four  years.  The 
President  of  the  Republic  with  consent  of  the  senate  has 
authority  to  order  an  earlier  dissolution,  but  such  a  dissolu- 
tion has  occurred  but  once.  As  already  stated,  the  chamber 
need  not  be  dissolved  in  case  of  a  change  in  ministry.  There 
is  no  elaborate  nominating  machinery.  Naturally  parties 
determine  by  their  own  rules  how  their  candidates  will  be 
selected.  All  that  is  necessary  in  order  to  become  a  candidate 
is  for  a  qualified  person  simply  to  inform  the  prefect  at  least 
five  days  before  election  that  he  intends  to  run  in  a  particular 
district.  The  deputies  are  elected  by  direct  vote  of  the 
citizens.  Each  department  elects  one  deputy  for  every 
75,000  inhabitants  of  French  nationality. 

Deputies  receive  an  annual  salary  of  27,000  francs  each. 
They  have  complete  freedom  of  speech  and  they  cannot  be 
prosecuted  or  arrested  during  a  session  of  parliament  for  any 
felony  or  misdemeanor,  except  upon  authority  of  the  cham- 
ber, unless  taken  in  the  very  act. 

Meetings  and  procedure  of  parliament:  Parliament  meets 
on  the  second  Tuesday  in  January  and  this  session  must  last 
five  months.  In  nearly  every  year  an  extra  session  is  required 
due  to  the  fact  that  the  budget  law  was  not  adopted  at  the 
regular  session.  Special  sessions  must  be  called  by  the 
President  of  the  Republic  either  on  the  advice  of  his  ministers 
or  at  the  request  of  an  absolute  majority  in  each  chamber. 


158  ]  BANKERS  TRUST  COMPANY 

However,  no  such  request  has  ever  been  made,  special 
sessions  having  always  been  called  by  initiative  of  the  council 
of  ministers.  The  chamber  is  presided  over  by  its  president, 
four  vice-presidents,  eight  secretaries  and  three  questors. 
These  officials  are  elected  annually  from  among  the  deputies 
themselves.  The  committee  system  is  an  important  feature 
of  the  French  legislative  methods.  The  budget  committee  is 
without  doubt  the  most  important  of  these  committees  just 
as  the  adoption  of  the  budget  is  the  most  important  work  of 
parliament.  A  discussion  of  the  budget  and  the  method  of  its 
passage  through  the  houses  of  parHament  is  reserved  for  a 
subsequent  chapter. 

The  National  Assembly 

For  the  purpose  of  electing  the  President  of  the  Republic, 
and  to  amend  the  constitution,  national  assemblies  are  con- 
vened at  Versailles.  These  assemblies  consist  of  the  senators 
and  deputies  meeting  as  one  body. 

In  electing  the  President  of  the  Republic  the  members 
vote  without  discussion.  An  urn  is  placed  in  the  tribune  in 
which  as  their  names  are  called  by  an  usher  the  members 
deposit  their  ballots.  The  voting  continues  until  one  of  the 
candidates  obtains  an  absolute  majority  of  the  votes.  The 
new  president  is  immediately  proclaimed  by  the  presiding 
officer  and  accompanied  by  the  ministers  re-enters  Paris  and 
installs  himself  in  the  Elysee  Palace. 

When  the  national  assembly  convenes  to  amend  the  con- 
stitution, it  is  as  the  result  of  a  majority  vote  taken  in  each 
chamber  that  revision  is  desirable.  By  the  constitutional  law 
of  1884  the  question  of  a  change  from  the  republican  form 
of  government  cannot  form  the  object  of  any  proposed  revi- 
sion of  the  constitution. 


FRENCH  PUBLIC  FINANCE  [  1 59 

Local  Administration 

Departments:  For  administrative  purposes  France  is 
divided  into  89  departments.  The  head  of  each  department 
is  the  prefect,  a  political  official  appointed  by  the  President 
of  the  Republic  under  the  counter  signature  of  the  minister  of 
the  interior.  The  prefect  acts  as  general  agent  of  the  govern- 
ment and  as  representative  of  the  central  authorities.  He 
supervises  the  execution  of  the  laws  and  has  wide  authority  in 
connection  with  the  police,  public  hygiene  and  relief  for  pauper 
children.  He  nominates  subordinate  officials  and  transmits  to 
them  the  orders  and  instructions  of  the  central  government. 

To  aid  him  the  prefect  has  a  general  secretary  and  an 
advisory  body  known  as  the  "conseil  de  prefecture,"  the 
members  of  which  are  appointed  by  the  President  of  the 
Republic.  This  prefectoral  council  has  jurisdiction  in  certain 
classes  of  disputes  arising  out  of  administration  and  must  in 
certain  cases  be  consulted  but  the  prefect  is  not  compelled  to 
follow  its  advice. 

There  is  also  an  elective  deliberative  body,  known  as  the 
general  council,  consisting  of  property  holders,  business  men, 
doctors  and  other  leading  citizens.  This  council  is  elected  by 
universal  suffrage,  each  canton  in  a  department  contributing 
one  member.  It  controls  the  departmental  administration  of 
the  prefect.  It  assigns  its  quota  of  taxes  to  each  arrondisse- 
ment;  authorizes  the  purchase  or  exchange  of  departmental 
property  and  superintends  the  management  thereof;  au- 
thorizes the  construction  of  new  roads,  railways  or  canals  and 
advises  on  matters  of  local  interest.  Political  questions  are 
rigorously  excluded  from  its  deliberations.  When  not  sitting, 
it  is  represented  by  a  permanent  commission — "commission 
departmental." 


l6o]  BANKERS  TRUST  COMPANY 

The  departments  are  divided  into  362  arrondissements 
(districts),  2,911  cantons  and  some  36,000  communes. 

Arrondissements:  The  arrondissement  is  an  administrative 
section  or  district  of  a  department.  It  has  not  like  the  depart- 
ment a  civil  personality;  it  has  no  budget;  and  now  that  the 
method  of  voting  by  districts  has  been  done  away  with 
it  has  very  little  reason  for  existing.  The  arrondissement  has 
at  its  head  a  sub-prefect  who  represents  the  departmental 
prefect  and  thus  the  central  authorities.  He  is  assisted  by  an 
advisory  council.  Each  canton  sends  a  member  to  this 
council  who  is  chosen  by  universal  suffrage.  As  the  arron- 
dissement has  neither  property  nor  budget  the  principal 
business  of  the  council  is  to  allot  to  each  commune  its  share 
of  the  direct  taxes  imposed  on  the  district  by  the  general 
(departmental)  council. 

Communes:  The  commune  has  been  defined  as  a  "local 
area  of  historical  growth  rather  than  an  artificial  creation." 
The  communes  vary  in  size  from  the  city  of  Paris  with  its 
population  of  about  3,000,000  and  a  budget  of  millions  of 
francs  to  little  country  villages  where  there  are  only  a  handful 
of  people.  The  chief  magistrate  of  the  communes  is  the 
mayor.  Just  as  is  the  case  with  a  prefect  of  a  department, 
the  rnayor  of  a  commune  is  the  agent  of  the  central  govern- 
ment and  as  such  is  charged  with  the  local  promulgation  and 
issue  of  the  decrees  of  the  nation.  He  is  also  executive  head 
of  the  municipality  and  in  this  capacity  supervises  the  police, 
the  revenues  and  the  public  works  and  acts  generally  as  a 
representative  of  the  commune.  The  mayor  is  elected  by  a 
municipal  council.  In  Paris  the  office  of  mayor  is  filled  by 
the  prefect  of  the  Department  of  the  Seine  and  the  prefect 
of  police. 

The  mayor  is  usually  assisted  by  one  or  more  deputies 


FRENCH  PUBLIC  FINANCE  [  l6l 

("adjoints")  depending  upon  the  size  of  the  commune.  Local 
affairs  are  decided  by  the  municipal  council.  This  council 
elected  every  four  years,  chooses  communal  delegates  to 
elect  senators  and  draws  up  a  list  of  tax  assessors  whose 
function  it  is  to  settle  how  the  commune's  share  of  direct 
taxes  shall  be  allotted  among  the  tax  payers.  The  sub-prefect 
selects  from  this  list  ten  persons  of  whom  he  approves  for  the 
post.    Meetings  of  the  council  are  open  to  the  public. 

Cantons:  The  canton  is  purely  an  administrative  division 
containing  on  an  average  about  twelve  communes,  though 
some  exceptional  communes  are  big  enough  to  contain  more 
than  one  canton.  It  is  the  seat  of  a  justice  of  the  peace  and 
is  the  electoral  unit  for  the  departmental  council  and  for  the 
district  council. 

Proposed  Regional  Districts:  A  re-division  of  France  into 
20  or  25  districts  to  supplant  government  administration  by 
the  present  system  of  small  departments  has  been  approved 
by  the  council  of  ministers.  The  aim  of  the  re-division  is  to 
eliminate  the  existing  congestion  of  central  offices,  excessive 
number  of  administrative  regions  and  the  limitation  of  local 
initiative. 

The  present  division  of  France  by  departments  was 
instituted  when  lack  of  communication  facilities  and  also 
political  reasons  necessitated  centralized  administration  of 
government.  Under  the  new  plan  the  number  of  adminis- 
trative districts  is  to  be  reduced  to  less  than  one  third  of  the 
existing  departments.  The  chief  city  in  each  region  will  be 
determined  by  decree  after  consultation  with  the  general 
councils. 

At  the  head  of  each  region  will  be  placed  a  regional 
prefect  who  will  have  authority  over  the  prefects  of  the 
departments.    He  will  be  given  a  certain  number  of  duties 


1 62  ]  BANKERS  TRUST  COMPANY 

which  are  at  present  attributed  to  the  central  administration. 

Each  region  will  possess  its  own  financial  organization, 
and  will  be  administered  by  a  regional  council.  The  duties 
attributed  to  this  regional  council  will  consist  in  part  of  those 
at  present  fulfilled  by  the  general  councils  and  in  part  of 
those  of  the  central  administration. 

The  resources  of  each  region  will  also  consist  of  part 
of  the  taxes  which  are  now  collected  by  the  state,  and  part 
of  those  turned  over  to  the  departments.  Each  region  may 
also  borrow  money  on  its  own  account. 

The  departments  will  be  maintained  in  each  new  district 
as  they  exist  at  present,  and  in  order  to  safeguard  their 
interests  the  project  provides  for  the  execution  by  the 
departments  of  public  works  paid  for  from  their  own  re- 
sources, if  these  have  been  set  aside  by  the  general  council. 

This  plan  is  now  seriously  under  consideration  and  if 
adopted  will  tend  to  simplify  local  government. 

The  Courts 

The  courts  of  France  are  divided  into  two  distinct  classes. 
These  are  the  administrative  courts  which  deal  with  official 
acts  and  the  judicial  courts  which  deal  with  the  acts  of  the 
general  public.  This  distinction,  not  known  in  American  and 
English  procedure,  deserves  a  few  lines  of  elucidation. 

Administratiie  courts:  The  French  theory  is  that  questions 
of  administration  should  not  go  before  the  judicial  courts  but 
should  be  determined  by  men  who  have  a  practical  and  special 
knowledge  of  administrative  law,  rather  than  by  those  who 
have  been  trained  only  in  private  law. 

Generally  speaking,  in  England  and  in  America  there  is 
one  and  the  same  law  for  the  public  servant  or  officer  and 
the  private  individual.    Not  so  in  France  and  other  con- 


FRENCH  PUBLIC  FINANCE  [  1 63 

tinental  countries;  there  the  pubHc  official  holds  a  privileged 
position.  His  rights  and  liabilities  as  well  as  the  rights  and 
liabilities  of  citizens  in  relation  to  him  are  decided  by  a 
separate  body  of  law,  known  as  administrative  law,  and 
special  courts  have  been  established  to  enforce  these  rights 
and  liabilities.  The  administrative  courts  are  an  outgrowth 
of  the  Napoleonic  legislation.  The  administrative  courts  are 
tribunals  of  enumerated  jurisdiction,  but  the  general  rule  is 
that  they  take  cognizance  of  all  administrative  facts.  Judges 
of  these  courts  are  appointed  by  the  President  of  the  Republic, 
but  unlike  the  members  of  the  judicial  courts,  are  removable 
at  his  pleasure.  It  should  be  stated  that  there  are  cases  in 
which  the  ordinary  courts  are  competent  to  judge  of  adminis- 
trative matters. 

There  are  two  classes  of  administrative  courts:  the  pre- 
fectoral  councils  ("conseils  de  prefecture")  and  the  council  of 
state  ("conseil  d'etat").  There  are  89  of  the  former  which,  as 
we  have  already  noted,  in  addition  to  their  judicial  functions 
have  an  advisory  relation  to  the  prefects  of  the  departments. 
The  latter  advises  the  ministers  in  regard  to  certain  classes 
of  ordinances  and  sundry  other  matters  of  an  administrative 
nature  and  also  sits  as  a  final  court  of  appeal  from  the  decision 
of  the  prefectoral  councils. 

Court  of  Conflicts:  In  case  of  disputes  as  to  whether  cases 
should  go  for  settlement  to  the  administrative  courts  or  to 
the  judicial  courts,  the  proper  procedure  is  determined  by  a 
special  court  established  for  this  purpose — the  court  of 
conflicts. 

The  Judicial  Courts:  Of  these  the  highest  is  the  court  of 
cassation.  Below  this  court  there  are  26  courts  of  appeal, 
each  of  which  has  territorial  jurisdiction  over  several  depart- 
ments; below  these  are  courts  of  first  instance  in  the  arron- 


164  ]  BANKERS  TRUST  COMPANY 

dissements,  while  below  these,  at  the  foundation  of  the 
judicial  structure  are  the  justices  of  the  peace  in  the  cantons. 
All  of  the  foregoing  courts  deal  with  civil  cases;  the  justices 
of  the  peace  also  act  as  police  judges  for  the  disposal  of  petty 
offenses. 

For  the  trial  of  minor  criminal  cases  the  same  courts  and 
tribunals  act  as  in  civil  cases  and  without  juries;  but  for 
more  serious  crimes,  courts  of  assizes  are  constituted  periodi- 
cally in  each  department,  with  a  jury  of  twelve  men  who  are 
the  sole  judges  of  the  question  of  guilt  and  who  fix  the 
punishment.  These  are  the  only  courts  in  France  with  juries. 
The  sentence  is  imposed  by  the  judges. 

Judges  in  all  courts  are  appointed  by  the  President  of 
the  Republic,  and  their  tenure,  except  in  the  cases  of  the 
justices  of  the  peace,  is  during  good  behaviour.  Judges  can 
only  be  removed  by  the  court  of  cassation. 

Commercial  Courts:  The  rights  and  obligations  of  mer- 
chants, the  formation  of  commercial  societies,  and  bank- 
ruptcy proceedings  are  regulated  by  a  special  code  and  par- 
ticular laws.  Such  cases  as  a  rule  are  submitted  to  tribunals 
composed  of  merchants  who  are  elected  officials.  The  electors 
are  French  merchants,  members  of  commercial  companies, 
ship  captains  and  other  business  men.  The  judicial  functions 
thus  exercised  are  gratuitous,  and  are  exercised  for  a  term 
of  two  years. 

Judgments  rendered  are  final  where  the  amount  in  litiga- 
tion is  below  a  certain  sum.  In  cases  where  larger  sums  are 
involved  an  appeal  lies  to  a  law  court.  However,  appeals  are 
rarely  taken.   These  courts  are  of  very  ancient  origin. 

Arbitration  Courts  {Conseils  de  Prud'hommes):  "Prud'- 
homme"  is  an  old  French  word  signifying  a  wise  man,  a 
prudent  man.  The  council  of  prud'hommes  is  a  court  charged 


FRENCH  PUBLIC  FINANCE 


[165 


GOVERNMENT  CHART 
See  Text  for  Descriptive  Data 

Political  Divisions  of  Continental  France,  including  Alsace-Lorraine: 

Departments 89 

Arrondissements  (Districts) 352 

Cantons 2,911 

Communes 36,222 

The  Administration 
The  President  of  the  Republic 
The  Ministries  The  Councils 

The  President  of  the  Council  of  Ministers 

who  also  heads  one  of  the  ministries.  The   Council    of    Ministers 

Justice  Public  Works  ^hen  the  President    of   the 

Foreign  Affairs  Conimerce  and  Industry  Republic  presides— at  other 

Interior  Agriculture  times  known  as  the  Cabinet. 

Finances  Colonies 

War  Labor 

Marine  Hygiene,  Relief  and 

Public  Instruction  and  Social  Providence 

Fine  Arts  Liberated  Regions  

The  Prefectoral  Council 

The  Prefects  of  Departments  The  General  Council 

The  Sub-Prefecta  The  Arrondissement  Council 

The  Mayors  The  Municipal  Council 

The  LEGISLATtTRE 

The  Senate — 314  members,  elected  by  Electoral  College 
Bureau 

President  of  the  Senate 

Vice-Presidents 

Secretaries 

Questora 
The  Chamber  of  Deputies — 612  members,  elected  by  universal  suffrage 
Bureau 

President  of  the  Chamber 

Vice-Presidents — 4 

Secretaries        — 8 

Questors  — ^3 

The  Courts 
Administrative  Judicial 

The  Court  of  Conflicts 
The  Council  of  State  Court  of  Cassation  which  is 

the  Supreme  Appellate  Court 
The  Prefectoral  Councils 

One  for  each  department  Courts  of  Appeal — 28 

Special  Courts  Courts  of  Assizes — For  extreme  criminal 

Arbitration   Courts  {Conseils   des  Prud'  cases;  constituted  from  time  to  time  as 

hommes) — Have  jurisdiction  over  dis-  required;  the  only  courts  with  juries, 

putes  between  employers  and  workmen. 

Courts  of  First  Instance — One  for  each 
Commercial  Courts  arrondissement  (i.e.,  district) 

Justices   of   the    Peace — One   for   each 
canton 


1 66]  BANKERS  TRUST  COMPANY 

with  terminating  by  way  of  conciliation,  and  if  necessary  by 
judgment,  such  differences  as  may  arise  between  merchants 
or  manufacturers  and  their  employees.  The  council  is  com- 
posed of  employers  and  employees  in  equal  numbers.  They 
are  sworn  in  before  a  civil  tribunal.  They  serve  for  six  years. 
They  elect  from  their  own  number  a  president  and  a  vice- 
president,  one  of  whom  must  be  an  employer  and  one  an 
employee.  The  judgments  rendered  are  final,  if  the  amount 
of  the  claim  does  not  exceed  300  francs;  if  it  exceeds  that 
sum,  it  may  be  taken  on  appeal  to  the  civil  court. 

Summary 

We  have  thus  roughly  sketched  the  manner  in  which 
France  is  governed  and  in  which  justice  is  administered.  To 
sum  the  subject  up  in  form  for  ready  reference  a  chart  has 
been  prepared  which  the  reader  may  now  be  interested 
in  examining.    This  chart  may  be  found  on  page  165. 

Those  who  desire  to  go  more  deeply  into  this  most  in- 
teresting subject  will  find  some  of  the  books  on  the  subject 
listed  and  briefly  characterized  in  the  bibliography  on 
page  347. 


Chapter  XIII 
The  Budget 

"/^^OLD,"  said  Christopher  Columbus,  "is  an  excellent 
^^  thing.  With  gold  treasures  are  made;  with  gold  one  can 
do  all  he  desires  in  this  world;  one  can  even  make  souls  reach 
paradise."  There  is  artistic  over-emphasis  here  as  to  the 
importance  of  gold — or  shall  we  say  of  money,  credit,  what 
ever  you  will, — to  express  the  thought  of  the  resources  from 
which  are  met  the  needs  of  the  individual  or  of  the  state. 
However,  we  will  all  agree  with  Columbus  as  to  the  need  of 
such  resources.  In  the  ancient  world  and  during  the  middle 
ages  there  were  no  systematic  methods  of  taxation.  It  was 
not  until  the  close  of  the  middle  ages  that,  gradually,  there 
emerged  a  regular  system  of  taxation.  During  the  feudal 
period  the  feudal  lords  were  expected  in  time  of  war  to  come 
to  the  aid  of  the  overlord  or  king,  with  their  bands  of  armed 
men  fully  equipped  and  with  their  needs  for  food  and  clothing 
provided  for.  For  his  ordinary  needs  the  king  had  his  exten- 
sive domains,  his  feudal  rights  and  the  right  to  take  which 
comes  from  might.  In  these  early  days  the  treasury  of  the 
king  was  also  the  treasury  of  the  state.  Wherever  the  king 
went  his  strong  boxes,  containing  his  jewels,  his  robes  and 
his  money  also  went.  The  king  came  to  have  certain  acknow- 
edged  rights  in  the  persons  and  property  of  his  people,  but  in 
turn  the  people  gradually  acquired  certain  rights  which  in 
England  developed  into  the  present  constitutional  form  of 
government. 

The  course  of  events  in  France  was  different.    The  na- 
tional treasury  dates  from  the  time  of  Philip  IV,  known  also 

[167 


1 68  ]  BANKERS  TRUST  COMPANY 

as  Philip  the  Fair,  who  reigned  in  the  latter  part  of  the  13th 
century  and  the  early  years  of  the  14th  century  (1285-13 14). 
The  key-note  of  the  French  system  from  the  beginning  was 
centralization.  The  king  through  his  fiscal  representatives 
at  Paris  demanded  certain  revenues  as  of  right  and  the 
central  bureau  in  Paris  apportioned  to  the  local  authorities 
the  amounts  which  they  might  expend. 

Autocracy  came  to  a  violent  end  with  the  advent  of  the 
revolution  of  1789,  but  the  centralized  system  of  financial 
administration  still  persists. 

Public  finance  in  France,  as  in  other  nations,  falls  into 
the  two  main  heads  of  national  and  local  finance.  We  will 
first  take  up  a  consideration  of  national  finance  and-  then 
we  will  see  how  the  local  finances  are  managed. 

The  Minister  of  Finance 

The  general  supervision  of  the  nation's  finances  is  vested 
in  the  Minister  of  Finance.  It  will  be  noted  that  we  have  not 
coupled  with  the  word  "supervision"  the  important  correla- 
tive term  "control."  This  we  have  not  done  advisedly  be- 
cause the  minister  of  finance  has  no  right  of  control  over 
the  expenditures  of  his  colleagues  in  the  ministries.  He  has 
no  means,  except  moral  suasion,  of  bringing  pressure  to  bear 
upon  them  either  to  keep  down  their  estimated  requirements 
or  to  compel  them  to  live  within  the  amounts  allotted  to  them 
in  the  budget. 

It  is  the  duty  of  the  minister  of  finance  to  lay  before  the 
chamber  of  deputies,  annually,  estimates  of  expenses  and  of 
revenues  for  the  next  fiscal  year.  These  estimates,  together 
with  the  accompanying  recommendations  for  making  them 
effective  are  known  by  the  generic  term  "the  budget." 


FRENCH  PUBLIC  FINANCE  [  169 

The  Budget 

M.  Rene  Stourm,  the  leading  authority  on  the  subject, 
defines  the  budget  of  the  state  as  "a  document  containing  a 
preliminary  approved  plan  of  public  income  and  expendi- 
tures." The  term,  as  it  has  come  to  be  used  now-a-days, 
is  perhaps  better  defined  by  Bastable  as  covering  "a  combina- 
tion of  ideas  of  (i)  a  valuation  of  receipts  and  expenditure, 
or  a  public  balance  sheet,  and  (2)  a  legislative  act  establish- 
ing and  authorizing  certain  kinds  and  amounts  of  expendi- 
ture and  taxation."  It  is  in  this  wider  sense  of  the  term, 
again  to  quote  Bastable,  "as  including  the  several  steps  of 
financial  legislation  and  control"  that  we  shall  use  the  word 
in  the  remarks  which  follow. 

As  thus  defined  the  term  budget  covers  the  whole  field 
of  public  finance,  which  may  be  conveniently  and  logically 
considered  in  the  following  order:  First  the  estimates  an4 
the  legislative  action  thereon  resulting  in  the  appropriation 
and  revenue  acts;  then  a  consideration  of  the  methods  of 
laying  and  collecting  taxes  and  other  revenues,  of  negotiating 
loans  and  of  disbursing  the  income  of  the  state  to  its  creditors 
or  beneficiaries;  and,  lastly,  we  will  wish  to  be  informed  in 
regard  to  accounting  methods,  audits  and  the  final  deter- 
mination of  the  accounts,  for  in  France  not  only  does  parlia- 
ment adopt  the  budget  for  a  given  year  but  it  also  determines 
when  the  accounts  shall  be  finally  and  definitely  closed. 

The  Fiscal  Tear  vs. 

The  Fiscal  Period  ( *  V  exercice' ' ) 

The  last  remark  makes  it  advisable  at  this  juncture  to 
define  the  difference  observed  in  French  fiscal  practice  be- 
tween the  fiscal  year  and  the  fiscal  period  ("rexercice"). 


I70 


BANKERS  TRUST  COMPANY 


RECEIPTS  AND  PAYMENTS— ACTUAL 

Fiscal  Year  19 13  [see  page  171] 
(In  francs — 000,000  omitted) 

Receipts  Expenses  Notes 


Budget  Services 

a/c  Exercice  1912 

Excess  of  receipts  of  budget  19 12 

credited  to  sundry  expenses  .    . 

a/c  Exercice  1913 

Total  Budget  Service      .    .    . 

Treasury  Services 


Total  Treasury  Services .    +60,146 
-S9.92S 

Totals      

Cash  and  Portfolio  Jan.  i 

Cash 512 

Receivables .      2,872 

GRA>fD  TOT.U-S 


5,076 


Special  Services    .    .    . 

Accounts  Payable 
Treasury  Bills  .    .    . 

.    + 
.    + 

552 

474 

i.SOi 
1,112 

"78 
389 

Annuities  and  Bonds 

•    + 

26s 
380 

-115 

Bank  Drafts.    .    .    . 

.    + 

39 
31 

"s 

Cheques 

.    + 

1,021 
960 

"61 

Treasury  Correspondents    +i9,i7S 

—  19,071 

Correspondents  of             f  + 19,002 

Finance  Accountants    \  — 19,235 

343 

'io4 
-233 

Special  Funds  of  Finance/  + 
Accountants      ....(  — 

782 
786 

-4 

Advances  for  Sundry 
Services     

.{t 

733 

843 

-no 

Accountants  Debits    . 

. 

0 



Transfer  of  Funds  be- 
tween Accountants 

/+  17,076 
.1-17.033 

43 

3.384 


567]  Actual  Cash  Revenue  Re- 
ceipts and  Government 
Expeness  for  calendar  year. 


427J 


109 


Receipts  and   Expenses  out- 
,     side    the    Budget,    giving 

net  receipts  of  78  million 

francs. 


Financing  Operations  diaclos- 
ing  net  borrowing  for  year 
of  343  million  francs. 


Transactions  between  Cen- 
tral Treasury  and  its  col- 
lecting and  paying  agents 
showing  net  debit  of  200 
million  francs  to  Central 
Treasury. 


I  Net  result  of  Treasury  Finan- 
j     cing. 


572 


Dec.  31 

608 

2,964 


8,68] 


8.681 


FRENCH  PUBLIC  FINANCE  [  I7I 

The  Fiscal  Year. — The  fiscal  year  is  a  definite  period  which 
corresponds  in  France  to  the  calendar  year.  The  annual 
finance  report  always  contains  a  statement  in  the  usual 
accounting  form  with  which  we  are  all  familiar.  This  state- 
ment gives  on  one  side  of  the  account  the  actual  receipts 
of  the  year  plus  the  cash  with  which  the  year  began  and 
balances  it  with  a  statement  of  expenses  and  the  cash  with 
which  the  year  ended.  On  page  170  is  such  a  statement  for 
the  year  191 3  taken  directly  from  the  finance  report  for  that 
year.  The  French  terms  have  been  translated.  This  is  sub- 
stantially the  form  in  which  the  accounts  of  the  United 
Kingdom  and  of  the  United  States  are  given.  However, 
this  is  only  a  memorandum  account  so  far  as  French  practice 
is  concerned. 

The  Fiscal  Period, — The  official  accounting  period  (the 
"exercice"  it  is  called  in  French  statements,  a  term  with  no 
exact  English  equivalent)  is  also  co-terminous  with  a  given 
calendar  year.  However  the  accounts  for  the  fiscal  period 
do  not  reflect  the  income  for  a  given  period  of  months  or 
the  actual  expenditure  within  such  period.  Rather  the  ac- 
counts for  the  "exercice,"  to  use  the  briefer  French  term, 
reflect  the  receipts  credited  in  the  books  of  account  to  a  given 
year  and  the  expenditures  debited  to  the  same  period.  The 
actual  figures  for  the  "exercice"  can  only  be  obtained  by  the 
inspection  of  the  accounts  for  two  successive  years.  For  in- 
stance, the  receipts  and  the  expenses  for  the  "exercice"  of 
I9i3^were  as  follows: — 

INCOME  ACCOUNT  FOR  "EXERCICE"  1913 

(Francs — 00,000  omitted)         Receipts     Expenses 
Amounts  received  or  paid  out  in  1913     4,958,9         4,426,7 
Amounts  received  or  paid  out  in  1914        144,1  923,0 

Totals 5.103.0        5.349.7 


172  J  BANKERS  TRUST  COMPANY 

Closing  of  the  ^^Exercice"  Year. — By  law  the  dates  for  clos- 
ing the  accounts  of  the  "exercice"  are  determined  as  follows: 
January  31  of  the  second  year  as  the  date  for  completing 
works  under  way;  March  31,  as  the  last  date  for  auditing 
and  vouchering;  April  30,  as  the  last  date  for  making  collec- 
tions and  payments;  June  30,  for  the  authorization  and 
realization  of  certain  expenditures  by  means  of  supplementary 
appropriations;  July  31,  for  the  rectification  of  the  records. 

We  need  not  go  into  the  detailed  consideration  of  this 
subject,  but  it  should  be  observed  that  so  far  as  creditors 
of  the  state  are  concerned  the  books  are  held  open  for  five 
years.  Even  then  there  are  exceptions  in  favor  of  creditors 
residing  outside  of  Europe,  or  where  the  fault  is  that  of  the 
government,  or  where  an  appeal  has  been  taken  to  the 
council  of  state. 

"The /exercice'  arrived  at,  the  limit  of  forfeiture"  says 
the  law,  "is  no  longer  carried  in  the  accounting  of  the 
ministries."  Thus  each  year  an  "exercice"  is  definitely  ended, 
for  instance  the  "exercice"  of  19 13  was  canceled  from  the 
accounting  records  on  January  i,  191 8. 

The  Estimates 

We  are  now  in  a  position  to  follow  the  development  of 
the  budget  through  its  various  stages.  The  first  step  is  to 
determine  upon  the  needs  of  the  various  government  de- 
partments, or  of  the  "ministries,"  as  they  say  in  France. 

The  initiative  is  taken  by  the  minister  of  finance  in  the 
form  of  a  circular  letter  to  the  other  ministers  requesting 
them  to  prepare  for  him  an  estimate  of  the  appropriations 
required  for  the  conduct  of  their  departments.  These  letters 
in  past  years  have  usually  been  sent  out  in  October  or  No- 
vember of  the  second  year  preceding  the  "exercice"  to  which 


FRENCH  PUBLIC  FINANCE  [  I73 

the  estimates  appertain.  For  example,  the  letters  requesting 
estimates  for  the  year  1923,  according  to  the  past  custom, 
would  have  been  sent  out  during  October  or  November  of 
192 1.  However,  we  are  advised  by  the  ministry  of  finance 
that  in  practice  the  actual  budgets  are  now  prepared  during 
the  first  quarter  of  the  preceding  year,  i.  e.  during  the  first 
quarter  of  1922  for  the  year  1923. 

The  ministers  are  assisted  in  making  up  their  estimates  by 
local  administrative  agencies  and  by  the  permanent  depart- 
ment heads.  The  local  agencies  being  close  to  the  people  are 
in  a  position,  better  than  anyone  else,  to  know  what  is  re- 
quired to  repair  or  build  roads,  for  docks,  warehouses,  canals, 
schools,  barracks  and  the  like.  Their  recommendations  are 
constantly  going  up  to  central  bureaus  in  each  city  or  depart- 
ment. The  mayor  or  the  prefect  pass  upon  these  recom- 
mendations or  requests  and  in  turn  send  their  suggestions  to 
the  proper  ministry  in  Paris.  Here  the  bureau  and  division 
heads  prepare  formal  estimates  for  the  minister  at  the  head 
of  their  respective  departments  and  finally  the  ministers  send 
the  completed  estimates  to  the  ministry  of  finance.  These 
estimates  are  then  consolidated  by  the  division  of  public 
accounting  of  the  ministry  of  finance  known  as  the  "service  of 
the  budget,"  and  finally  reach  the  minister  of  finance  in  person. 

Meanwhile  the  accounting  officers  in  the  ministry  of 
finance  have  been  busy  preparing  the  revenue  estimates. 
These  estimates  so  far  as  indirect  taxes,  monopolies  and 
domains  are  concerned,  as  well  as  the  expense  estimates, 
are  made  upon  what  is  known  as  the  automatic  or  averaging 
system.  That  is  they  are  based  as  to  receipts  upon  the 
actual  results  of  the  second  year  preceding  and  as  to 
expenses  upon  the  appropriations  made  for  the  year  pre- 
ceding that  for  which  the  budget  is  being  prepared.    For 


174  J  BANKERS  TRUST  COMPANY 

example  the  estimated  income  for  1913  was  based  upon 
the  actual  income  of  191 1,  and  the  expenses  upon  the 
appropriations  made  in  191 1  for  the  191 2  "exercice."  The 
probable  yield  of  direct  taxes  "the  annual  proceeds  of 
which  vary  but  little  without  sudden  drops"  are  estimated 
"in  accordance  with  the  most  convincing  indications." 

The  automatic  method  is  most  unsatisfactory.  Esti- 
mates which  are  made  so  long  in  advance  and  which  are 
based  upon  conditions  which  prevailed  in  the  year  preced- 
ing that  in  which  they  were  made  are  apt  to  be  much  at 
variance  with  actual  conditions  which  obtain  in  the  year 
when  the  money  is  spent. 

There  is  great  temptation  to  make  a  budget  which  reads 
well.  If  the  outcome  does  not  agree  with  the  estimates  there 
is  always  the  excuse  that  conditions  changed  after  the  esti- 
mates were  made. 

The  Budget  in  Parliament 

After  the  estimates  have  been  reviewed  by  the  minister 
of  finance  they  are  put  in  the  form  of  a  law,  with  explanatory 
memoranda,  and  are  presented  by  the  minister  in  person  to  the 
chamber  of  deputies. 

The  budget  is  usually  submitted  in  January  (in  1922  it  was 
submitted  in  April)  and  immediately  referred  to  the  com- 
mission of  finance.  This  commission  consists  of  some 
thirty-eight  members  one  of  whom  is  appointed  reporter,  or 
chairman.  In  due  course,  sometimes  only  after  several 
months  have  elapsed,  the  commission  report  to  the  chamber. 
Their  report  is  usually  in  much  detail  and  involves  numerous 
changes.  After  this  report  has  been  duly  debated  the  budget 
law  is  passed  and  then  goes  to  the  senate. 

The  senate  is  accustomed  to  anticipate  by  some  weeks  the 


FRENCH  PUBLIC  FINANCE  [  1 75 

receipt  of  the  formal  law  by  appointing  a  budget  commission 
which  informally  considers  the  budget  as  presented  to  the 
chamber  of  deputies.  Therefore,  when  the  formal  law  is 
received  it  has  already  been  pretty  well  debated  in  committee. 
Thus  the  committee  can  quite  promptly  report  its  recommen- 
dations. After  debate  on  the  floor  of  the  senate,  a  bill  is  agreed 
upon  which  goes  back  to  the  chamber.  There  are  usually 
differences  to  be  ironed  out.  Apparently  French  parliamen- 
tary procedure  does  not  include  the  American  scheme  of  a 
conference  committee.  Presumably  there  are  private  con- 
ferences. At  any  rate  in  due  course  the  two  chambers  agree 
and  the  budget  is  no  longer  a  "project"  but  a  law.  Finally, 
this  law,  as  is  the  case  with  every  other  law,  is  promulgated 
by  the  President  of  the  Republic. 

Supplementary  Appropriations 

In  spite  of  careful  preparation  and  of  the  prolonged  study 
in  commission,  the  budget  bill  rarely  gets  through  parliament 
without  numerous  amendments  off^ered  by  individual  mem- 
bers. These  are  invariably  in  the  direction  of  increased 
appropriations. 

Worse  than  this,  however,  is  the  fact  that  hardly  has  the 
budget  law  been  enacted  before  the  process  of  amendment 
begins.  As  far  back  as  1877  ^^  English  commercial  report 
from  Paris  refers  to  "the  eternal  question  of  supplementary 
credits."  "Each  minister,"  says  the  writer,  "is  inclined  to 
ask  for  additional  sums  of  money  for  his  particular  depart- 
ment, and  the  chambers  are  perhaps  but  too  ready  to  vote 
them,  especially  if  they  are  not  required  at  once,  but  for  some 
future  year.  There  is,  in  fact,  an  uninterrupted  program  of 
expenditure  in  each  successive  budget." 

It  is  only  fair  to  the  system  to  state  that,  from  time  to 


176]  BANKERS  TRUST  COMPANY 

time,  there  are  also  cancellations  of  appropriations.  These 
come  about  more  or  less  as  a  result  of  departmental  routine, 
because  of  change  of  plans  or  for  some  similar  reason.  Still, 
it  is  safe  to  say  that  the  net  result  of  supplementary  action 
is  always  in  the  direction  of  additions  to  expenditure. 

Making  the  ig2I  Budget 

To  illustrate  the  foregoing  remarks  we  will  now  follow 
the  budget  of  1921  in  its  progress  from  the  office  of  the 
minister  of  finance  until  its  final  adoption.  We  will  confine 
our  remarks  to  the  appropriations  side  of  the  account. 

The  proposed  budget  for  192 1  was  not  presented  to  the 
chamber  of  deputies  until  July  30,  1920,  fully  six  months 
later  than  the  usual  time,  which,  however,  was  marked 
progress  so  soon  after  the  war. 

The  budget  was  divided  into  three  parts,  ordinary,  extra- 
ordinary and  special.  The  first  two  divisions  had  to  do,  re- 
spectively, (a)  with  the  regular  or  normal  expenses  of  govern- 
ment and  (b)  with  expenses  not  of  a  permanent  nature,  due  to 
exceptional  circumstances,  as  a  consequence  of  the  war.  The 
special  budget  had  particularly  to  do  with  the  expense  of 
reconstruction  of  the  devastated  regions.  The  commission 
of  the  chamber  of  deputies  reported  their  findings  to  the 
chamber  on  January  12,  1921.  The  budget  then  went  to  the 
senate  and,  following  the  usual  custom,  was  referred  to  the 
senate  finance  commission  which  reported  their  findings  on 
March  4,  1921.  The  budget  law  was  finally  adopted  on 
April  30  and  promulgated  on  May  i,  so  that  the  budget  law 
was  not  effective  until  four  months  after  the  beginning  of  the 
"exercice"  to  which  it  applied.  Similarly  the  budget  for  1920 
was  not  adopted  until  July  30  of  1920.  We  will  explain  shortly 
how  the  finances  are  cared  for  under  such  circumstances. 


FRENCH  PUBLIC  FINANCE  [  I77 

In  the  table  on  page  178,  the  first  four  columns  of  which 
are  made  up  directly  from  the  report  of  the  senate  budget 
commission  and  the  last  column  from  the  budget  law,  the 
interested  reader  may  trace  the  course  of  the  budget  bill 
through  the  two  chambers.  The  figures  are  for  the  ordinary 
budget.  The  first  column  gives  the  appropriations  for  1920. 
The  second  column  gives  the  appropriations  for  192 1  recom- 
mended by  the  minister  of  finance  upon  the  basis  of  the  esti- 
mates submitted  to  him  by  the  other  ministers  through  the 
budget  service,  which  in  turn  were  based  upon  the  1920 
appropriations.  The  third  column  gives  the  amounts  voted 
by  the  chamber  of  deputies,  the  fourth  the  recommendations 
of  the  senate  finance  commission.  We  do  not  happen  to  have 
available  the  record  of  the  amounts  voted  by  the  senate.  In 
the  last  column  are  given  the  amounts  finally  appropriated. 

It  is  of  interest  to  note  that  as  soon  as  the  end  of  July  it 
was  found  necessary  to  increase  the  appropriations  for  this 
ordinary  budget  from  the  23,262  million  francs  adopted  on 
April  30  to  24,579  million  francs,  an  increase  of  over  a  billion 
francs  in  90  days. 

For  the  sake  of  the  record  we  may  note  that  the  total 

appropriations  for  1921  were  as  follows: — 

In  Millions 

Ordinary  Budget 23,262 

Extra-ordinary  budget 3,236 

Special  Budget      15,816 

Total 42,314 

Provisional  Twelfths 

The  reader  has  no  doubt  already  raised  the  question  in 
his  own  mind  as  to  how  the  government  regulates  its  expendi- 
tures when,  as  was  the  case  in  1920  and  again  in  1921,  the 
budget  is  not  adopted  until  the  year  is  well  under  way. 


178 


BANKERS  TRUST  COMPANY 


ORDINARY  BUDGET  FOR  THE  "EXERCICE"  1921 

Recapitulation  of  the  Appropriations  Asked  for  and  Granted 

(In  francs — 000,000  omitted) 


Appro- 

Appro- 

Appro- 

priations 

Appro- 

priations 

Appro- 

Ministries 

priations 

Asked 

priations 

Advised 

priations 

and 

for  1920 

by 

Voted  by 

by 

Finally 

Services 

The 

Govern- 

Deputies 

Senate 

Made 

Basis 

ment 

Com- 
mission 

for  1 92 1 

Public  Debt      .... 

11,633 

10,139 

11,251 

11,248 

11,248 

Public  Powers  .... 

38 

39 

40 

40 

41 

Ministries: 

Finance     

209 

242 

272 

269 

279 

Justice 

112 

125 

152 

133 

143 

Foreign  Affairs .   .    . 

61 

74 

68 

66 

68 

Interior 

150 

178 

178 

166 

167 

War 

2.587 

3,299 

3,336 

2,965 

3,135 

Marine 

752 

1,091 

962 

832 

832 

^  Education  and 

Beaux-Arts   .    .    . 

1,067 

1,200 

1,293 

1,233 

1,294 

^Commerce  and 

Industry    .    .    .    . 

14 

18 

18 

17 

17 

Labor     

151 

159 

174 

168 

167 

Colonies 

217 

262 

252 

216 

236 

^Agriculture   .    .    .    . 
'^Public  Works   .    .    . 

99 

99 

106 

91 

lOI 

i»952 

2,138 

1,640 

2,209 

2,607 

Pensions,  Etc.  .    .    . 

95 

151 

149 

134 

136 

Hygiene,  etc.    .    .    . 

163 

279 

225 

199 

203 

Total  Ministries  for 
General  Services  . 

7,629 

9,315 

8,825 

8,698 

9,385 

Cost  of  Collecting 

Revenues  .... 

2,369 

2,705 

2,597 

2,431 

2,458 

Reimbursements,  Res- 

stitutions  and  Non- 

valeurs 

92 

129 

129 

129 

130 

Total  Ordinary  Budget 

21,761 

22,327 

22,842 

22,546 

23,262 

FRENCH  PUBLIC  FINANCE  [  1 79 

Such  situations  are  provided  for  under  French  fiscal 
methods  by  voting  from  month  to  month  appropriations  for 
expenses  and  authorizations  to  impose  and  collect  revenues. 
Such  temporary  legislation  goes  under  the  designation  of 
"provisional  twelfths"  because  it  is  the  custom  to  take  as  a 
basis  for  such  appropriations  one  twelfth  of  the  previous 
year's  appropriation  for  each  month  for  which  temporary 
provision  is  made. 

In  Conclusion 

It  would  be  interesting,  if  space  permitted,  to  discuss  in 
detail  the  form  of  the  budget  law  and  the  methods  of  its 
application.  The  comparative  study  of  the  budget  systems  of 
different  countries  is  well  worth  the  thoughtful  attention  of 
those  charged  with  the  management  of  the  public  finances 
of  nations  or  their  local  divisions.  Those  who  wish  to  pur- 
sue the  subject  further  should  consult  M.  Stourm's  classic 
book  on  this  subject,  "The  Budget,"  preferably  in  the  French 
edition,  although  there  is  also  a  good  translation  available. 


Chapter  XIV 
National  Expenditures 

^T^O  quote  Stourm,  "The  consideration  of  national  expendi- 
-^  tures  always  precedes  that  of  income,  just  reversing  the 
methods  in  private  practice.  A  family  or  an  individual  must 
determine  their  expenditures  by  their  income.  On  the  other 
hand  the  state  determines  what  it  needs,  or  what  would  be 
good  for  its  citizens  collectively,  and  then  lays  taxes  or  bor- 
rows money  accordingly." 

The  expenses  of  the  war  and  post-war  periods  have  already 
been  quite  fully  discussed  in  chapters  ii,  iii,  iv  and  X. 

The  present  day  expenditures  of  the  French  nation,  apart 
from  the  cost  of  reconstruction, may  be  roughly  allocated,  in 
the  order  of  their  importance,  as  follows: — to  the  service  of 
the  debt  about  43  per  cent.;  for  safety  about  23  per  cent.; 
for  general  internal  administration,  including  postal  service, 
telegraph  and  telephone,  about  17  per  cent.;  for  the  develop- 
ment of  economic  activity,  including  subsidies  and  other 
disbursements  to  or  on  account  of  state  railways  and  work 
on  roads,  bridges,  rivers  and  canals,  also  including  the  ex- 
penses of  the  department  of  agriculture,  colonies  (for  civil 
expenses)  and  the  department  of  commerce  and  industry, 
about  10  per  cent.;  for  education,  libraries,  art  and  the  like 
between  4  and  5  per  cent.;  for  social  work,  such  as  workmen's 
and  farmers'  pensions,  allowances  for  large  families,  assistance 
to  the  aged,  crippled  and  incurables,  the  anti-tuberculosis 
campaign,  assistance  to  mutual-aid  societies  and  other  like 
expenses  about  1^4  per  cent.,  and  for  external  relations  about 
I  per  cent. 
180 1 


FRENCH  PUBLIC  FINANCE  [  l8l 

The  table  on  page  182  compares  the  expenditures  by 
ministries  for  1868  and  1873  and  for  decennial  periods  there- 
after to  1 91 3.  The  figures  for  1920  are  added  for  compari- 
son. It  is  interesting  to  note  the  growth  in  military  expenses 
prior  to  the  war,  the  reasons  for  which  we  have  already  dis- 
cussed in  chapter  11.  The  debt  service  was  relatively  station- 
ary or  even  declined  during  this  period.  Apart  from  the  above 
the  important  facts  which  these  comparative  statistics  de- 
velop are  the  growth  in  expenditures  for  social  benefits,  such 
as  education,  civil  pensions  and  the  like  and  the  expense 
France  is  put  to  in  maintaining  her  colonial  empire.  This 
empire  contributes  to  the  strength  of  France  but  it  also  im- 
poses upon  her  a  heavy  expenditure. 

On  account  of  the  dis-establishment  of  the  church  in  1905 
the  ministry  of  worship  thereafter  disappears  from  the 
accounts,  but  this  diminution  of  expense  is  more  apparent 
than  real,  as  the  nation  will  for  some  years  yet  be  paying 
large  pensions,  in  the  aggregate,  to  the  clergy  in  office  when 
the  church  was  dis-established,  while  the  state  is  still  con- 
tributing to  the  upkeep  of  church  buildings. 

The  cost  of  collecting  the  revenues  is  large  in  the  aggre- 
gate, but  moderate  in  percentage  cost. 

The  normal  public  expenditures  of  France  cannot  be 
criticized  as  to  their  character  or  their  size.  In  these  respects 
they  do  not  differ  materially  from  those  of  other  nations. 

It  is  unfortunate,  because  of  the  early  date  at  which  budget 
estimates  are  made,  that  expenditures  are  frequently  in- 
curred which  have  no  budgetary  authority.  The  ministers 
are  apt  to  incur  expense  to  meet  pressing  exigencies  expecting 
to  have  their  action  approved  by  supplementary  appro- 
priations. 

During  the  war  parliament  voted  blanket  appropriations 


l82 


BANKERS  TRUST  COMPANY 


NATIONAL  EXPENDITURES 

1868-1920 

Including  Ordinary,  Extraordinary  and  Special  Accounts 

(In  francs — 000,000  omitted) 

[Data  1868-1913  from  Annual  Reports  and  1920  from  Special  Statement  of 

Ministrj'  of  Finance] 


Ministry  or  Service 

Exer- 
cice 
1868 

'Exer- 
cice 
1873 

Exer- 
cice 
1883 

Exer- 
cice 
1893 

Exer- 
cice 
1903 

Exer- 
cice 
1913 

*  « 

Exer- 
cice 
1920 

Debt  Charge 

Pensions  m 

382 
84 

""S2 

64 
33 
14 
70 
461 

j     197 

d 
d 

176 
45 

221 
9 

1.196 
104 

30 

54 

34 

12 

112 

482 

156 

54 
22 

d 

d 

141 
42 

""247 
17 

1,121 
176 

37 

26 
37 
15 
62 
739 
279 

SI 
23 

602 
170 

* "  "334 
20 

1,039 

217 

13 

28 
35 
17 
72 
650 

(  ".I 
/' 

272 
182 

' ' '36s 

48 

924 
249 

■■"14 

29 

36 

17 

80 

706 

30s 

103 

42 

35 

273 
232 

452 

47 

958 
326 

20 

'1; 

21 
150 

I,i62 

553 

103 

c 

SS 

8 

8 

Ji 

""8s 
627 

SI 

11,269 

859 

4.909 

38 

1,779 
148 
318 
597 
5,459 
1,009 
313 

War  Pensions 

Public  Powers 

Ministries 

Justice 

Foreign  Affairs 

Interior 

Navy 

Worship 

Agriculture 

Commerce 

Industry 

179 

/Public  Works/ 

'  Education  and  Fine  Arts   .    . 

Pensions 

Hygiene,  etc.,  g,» 

Labor     

Cost  of  Collecting  Revenues   .    . 
Reimbursements,     Restitutions 

and  non-valeurs 

4,751 
1,378 
1,058 
1.713 
154 
a 

5,736 

41 

28 

7 

72 

b 

6 

b 

Alsace-Lorraine    .    .    . 

725 



Total 

1,903 

2,874 

3.722 

3.45 1 

3.597 

5.067 

S8,ii6 

a  These  totaled  in  1920  2,709,  but  the  amount  is  distributed  in  the  various  accounts. 

h  Not  given  in  statement.     Presumably  included  in  figures  for  ministries. 

c  Discontinued  in  1905.     See  text. 

d  Included  in  Public  Works. 

/  Includes  Post  Office  and  Telegraph  &  Telephone. 

g  New  Ministries  since  1914;  because  of  war. 

h  Extraordinary. 

*■  Includes  Hygiene,  393;  Revictualling,  1,311;  Stocks,  9. 

k  Total  cost  of  reconstruction  was  16,484.  This  includes  the  15.709  for  the  liberated 
regions  and  certain  relatively  small  items  incorporated  in  other  accounts  listed  above. 
m  The  pre-war  civil  and  military  pensions  known  as  "Dette  Viagdre,"  i.  e.  "life 
debt"  or  "life  annuities." 

m  The  distribution  of  expenses  differs  somewhat  from  that  given  for  1920  on  page  22. 


FRENCH  PUBLIC  FINANCE  [  1 83 

which  were  equivalent  to  an  authorization  to  the  government 
to  incur  expenses  for  such  purposes  and  in  such  amounts 
as  they  found  necessary.  The  appropriations  of  this  nature 
aggregated  165  bilHon  francs;  at  par  of  exchange,  33  billion 
dollars,  a  tremendous  responsibility  for  a  nation  to  vest  in 
a  small  group  of  its  citizens,  but  necessary  under  the  circum- 
stances. England  and  other  countries  likewise  had  their  votes 
of  credit  which  carried  similar  rights  and  responsibilities  to 
their  ministries. 

The  expenditures  for  the  war  period  and  since,  so  far  as 
data  have  been  published,  are  set  forth  and  discussed  in 
chapters  iii  and  iv.     See  especially  the  table  on  page  22. 


Chapter  XV 
National  Revenues 

^  I  ^HE  tax  revenues  of  the  French  government  are  princi- 
-■-  pally  derived  from  taxes  upon  the  income  from  real 
estate,  from  general  and  special  income  taxes,  from  fees  for 
the  registration  of  legal  documents,  from  stamp  taxes  upon 
legal  papers  and  commercial  documents,  from  customs  and 
from  excise  and  consumption  taxes. 

The  French  have  for  years  made  of  the  manufacture  and 
sale  of  gunpowder,  matches  and  tobacco  a  government 
monopoly.  The  government  also  owns  and  operates  the  tele- 
graph and  telephone  systems  of  the  country  and  of  course 
operates  the  postal  service. 

France  still  derives  a  considerable  revenue  from  her  public 
properties,  especially  from  her  forests. 

Finally,  there  are  certain  exceptional  resources  the  most 
important  of  which  are,  in  a  sense,  not  true  resources  of  the 
state,  but  only  moneys  which  the  state  handles  for  account 
of  others,  such  as  payments  to  pension  funds  deducted  from 
the  wages  of  state  employees,  or  receipts  in  adjustment  of 
accounts. 

Since  the  war  there  has  been  a  considerable  adventitious 
income  from  the  sale  of  the  overplus  of  war  munitions. 

We  have  already  discussed  in  a  general  way,  in  chapter  iv, 
the  revenues  of  France  during  the  war  period.  For  the  in- 
formation of  those  who  are  interested  to  know  about  such 
matters  more  in  detail  the  accompanying  tables  and  notes 
have  been  prepared. 

184] 


FRENCH  PUBLIC  FINANCE 


185 


TAXES  AND  REVENUES— TABLE  I 

For  "Exercices"  1868-1913 

(In  francs — 000,000  omitted) 

[Data  from*  Annual  Reports  of  Ministry  of  Finance] 


Nos. 

Refer  to 
Notes 
End  of 

Chapter 

1868 

1873 

1883 

1893 

1903 

1913 

Direct  Taxes 
*01d 

I 
2 

329 

7 

389 
20 

394 
26 

464 

33 

495 

47 

584 
63 

♦Assimilated 

Total 

336 

,     409 

420 

497 

542 

647 

I 

7 
8 
II 
12 
14 
IS 
17 

Indirect  Taxes 

Registration 

364 
85 

422 
140 

549 
159 

522 

167 

592 
200 

834 

241 

10 

Bourse 

Stocks  and  Bonds 

048 
300 
421 
34 
148 
187 

67 
431 
468 

32 
195 
118 

80 
402 
406 

35 
162 
184 

138 

Customs  k                 

77 
243 

32 
III 

64 

162 
328 
36 
173 
136 

778 

697 

Salt    .    . 

f 

Sugar 

191 

Sundry  . 

Total       

976 

1.397 

1.846 

2,000 

2,061 

2  889 

Monopolies 

C27 

374 
II 

167 
43 

eio 

35 
434 

13 
232 

64 

20 

44 
542 

25 

Tobacco 

248 
10 

291 
II 

III 
IS 

372 
IS 

134 
30 

Postal 

293 

Telegraph  and  Telephone 

Sundry 

118 

13 

18 

19 
20 
21 
22 
23 

Total 

360 

428 

SSI 

632 

798 

1,035 

State  Properties 

52 
15 

37 

145 
14 

S2 

18 

III 

255 
21 

46 

23 

76 

60. 

42 

113 

25 

8 

SI 

SI 

129 

70 

12 

5 

62 

Receipts  by  Order 

Sundry     

211 
71 

Exceptional 

18S 

Algeria    

3 

Grand  Total 

1,935 

2,691 

3,653 

3,368 

3.668 

S.103 

*  Collections  for  departments  and  communes  not  included. 

a  Began  in  1875.         c  Began  in  1890.         /  Out  in  1906. 

6  Not  given  e  Began  in  1886.         k  Sugar  and  Salt  not  included. 


11-^ 


A?' 


i86] 


BANKERS  TRUST  COMPANY 


TAXES  AND  REVENUES— TABLE  II 

For  "Exercices"  1914-1921 

(In  francs — 000,000  omitted) 

[Data  1914-1920  from  Bulletin  De  Statistique  et  De  Legislation  Comparee; 
192 1  furnished  by  Ministry  of  Finance] 


Nos. 

Refer  to 
Notes 
End  of 

Chapter 

1914 

191S 

1916 

1917 

1918 

1919 

1920 

1921 

Direct  Taxes 

Old 

Assimilated 

Incomes 

■ 

2 
3 

594 
64 

502 

SI 

526 
53 
33 

545 

80 

201 

634 

263 

99 

513 

1,780 

251 

no 

869 

1.725 

189 

100 
712 

2,937 

1,64s 

War  Profits 

IT60 

Total 

6S8 

553 

612 

1,460 

2,655 

3,955 

3,938 

5,365 

5 

6 

7 

8 

9 
10 
II 

12-17 

Indirect  Taxes 

Registration      .... 

Stamps 

Bourse 

Stocks  &  Bonds   .    .    . 

61S 

196 

6 

I  S3 

462 

146 

I 

157 

52s 

158 

2 

181 

720 

173 

3 

242 

924 
215 
3 
253 
210 

1,874 

312 

7 

290 

629 

2,718 
516 
25 
568 
804 
942 

1,592 

2,392 

2,705 
565 

19 
926 

13 

1,898 

Customs  d 

Excise  and  Consump- 
tion     

578 
74s 

786 
708 

1,400 
677 

1,599 
913 

1,185 
963 

1,476 
1.698 

1. 197 
3,284 

Total 

2,293 

2,260 

2,943 

3,650 

3.753 

6,286 

9.557 

10,607 

18 
19 

20  &  21 
22 

Monopolies 

State  Properties  ,    .    . 

Receipts    by  Order  & 

Sundry    

931 
124 

6 

852 
186 

466 

943 
240 

h 

1,109 
254 

& 

1. 154 
284 

h 

1,631 
100 

350 
CI, 193 

2,502 
144 

590 
ci,650 

1.711 
113 

1.173 
e  1,501 

8 

Al  <;ArT<"-T.niIR  ATTMTT 

216 

Grand  Total  .   .    . 

4,006 

4.317 

4.738 

6.473 

7,846 

I2.5IS 

18,381 

21,765 

b  Figures  not  given. 

c  Sale  of  War  Material. 

d  Sugar  and  Salt  not  included. 

e  Liquidation  of  stocks  of  war  material. 


FRENCH  PUBLIC  FINANCE 


187 


Table  I  gives  in  comparative  form  receipts  of  the  treasury 
in  1868  and  1873  and  for  decennial  periods  to  191 3  inclusive. 
This  table  may  be  read  in  connection  with  the  correlative 
expense  table  printed  on  page  182.  Table  11  gives  in  itemized 
form  the  revenue  receipts  for  each  of  the  war  and  post-war 
years. 

These  tables  make  clear  the  remarks  in  regard  to  tax 
revenues  and  show  the  relative  importance  of  the  several 
forms  of  taxation. 

The  notes  appended  to  this  chapter  explain  each  form  of 
taxation,  or  of  other  revenue  receipts,  used  in  French  treasury 
practice,  except  borrowing.  Information  in  regard  to  the 
debt  is  given  in  the  following  chapter. 

The  following  table  compares  the  total  figures  of  receipts 
and  expenditures  for  each  year: — 


TOTAL  RECEIPTS  AND  TOTAL  EXPENDITURES  EXCLUDING 
RECEIPTS  AND  PAYMENTS  ON  DEBT  ACCOUNT 
For  "Exercices"  1868-1920 
(In  francs — 000,000  omitted) 


1868 

1873 

1883 

1893 

1903 

1913 

1920 

Receipts  .... 
Expenses.    .    .    . 

1,935 
1,903 

2,691 
2,874 

3,653 
3,722 

3,368 
3,451 

3,668 
3,597 

5,103 
5,067 

18,381 
58,116 

Surplus  (+)  or 
Deficit  (-)      . 

+32 

-183 

-6q 

-83 

+  71 

+36 

-39.735 

These  deficits  were  met  by  borrowing  or  by  utilizing 
surpluses  from  previous  years.  It  is  impossible  to  show  how 
this  was  accomplished  by  an  examination  of  the  "exercice" 
figures,  but  the  corresponding  figures  for  the  same  fiscal 
years  bring  out  the  facts  fairly  well.    They  do  not  exactly 


/ 


BANKERS  TRUST  COMPANY 


agree  with  the  "exercice"  figures,  for,  as  already  explained  in 
chapter  xiii,  the  latter  are  for  accounting  periods  to  which 
are  credited  or  debited  receipts  and  expenses  which  may 
accrue  over  a  period  of  several  calendar  years,  while  the  fiscal 
year  figures  reflect  the  actual  transactions  for  the  calendar 
year  which  is  also  the  fiscal  year. 

TOTAL  RECEIPTS  AND  TOTAL  EXPENDITURES 
For  Fiscal  Years  i  868-1920 
(In  francs — 000,000  omitted) 


1868 

1873 

1883 

1893 

1903 

1913 

1920 

Receipts 

Expenses 

2,241 
2,176 

2,975 
3468 

4,173 
4,140 

3400 

3.752 

3,678 
3,595 

5,075 
5,109 

** 

Surplus  (+)  or 

Deficit  (-)      .    . 
Cash  (+  or  — ) 
Debt  (+  or  -)      . 

+65 
+97 
+32 

-493 
-802 

-309 

+33 
-182 

-215 

-352 
-157 
+  195 

+83 
+  131 

+  48 

-34 
+  188 
+221 

** 
** 
** 

**Not  available. 

In  the  figures  for  1868,  1873  ^^^  1883,  in  the  second  table, 
there  are  included,  in  the  receipts,  taxes  collected  for  the 
departments  and  communes  and,  in  the  expenses,  the  transfer 
of  these  collections  to  the  local  authorities,  but  as  these 
transactions  about  balance  each  other  they  do  not  afl^ect  the 
net  result. 

NOTES  TO  TAX  AND  REVENUE  TABLES  I  AND  II 

Classification: — ^The  classification  of  treasury  receipts  observed  in 
the  accompanying  tables  is  not  strictly  scientific,  but  it  is  the  form 
observed  in  the  official  statements,  except  that  the  second  heading 
"Indirect  Taxes"  is  not  now  used.  However,  in  a  rough  way,  this 
separation  serves  to  differentiate  between  the  old  direct  and  similar 
taxes  and  other  taxes  whose  incidence,  in  the  main,  with  the  exception 
of  (8),  is  indirect. 

(i)  Old  Direct  Taxes: — Prior  to  19 14  these  taxes,  four  in  number, 
and  therefore  popularly  known   as  "the  four  old  women"  were  (a) 


FRENCH  PUBLIC  FINANCE  [  1 89 

the  contribution  fonciere,  a  tax  based  on  real  estate;  (b)  the  contribution 
personelle  et  mobiliere,  at  first  a  tax  on  the  letting  value  of  real  estate, 
later  becoming  a  straight  house  tax  (combined  with  this  tax  was  a 
personal,  or  head  tax,  based  on  the  value  of  three  days  labor) ;  (c)  a  tax 
on  doors  and  windows;  (d)  the  contribution  des  patentes,  a  tax  on  occu- 
pations and  professions.  These  taxes  dated  from  the  time  of  the  revolu- 
tion and  the  years  immediately  subsequent  thereto,  although  from  time 
to  time  modified  to  meet  new  conditions. 

By  laws  enacted  March  29,  1914,  July  31,  1917  and  June  25,  1920 
these  taxes  were  revised  as  follows:  (a)  contribution  fonciere:  after 
January  i,  19 15  the  tax  on  unimproved  real  estate  ceased  to  be  an 
apportioned  tax  and  the  quotas  to  be  paid  by  the  departments,  arron- 
dissements  and  communes  were  no  longer  fixed.  The  tax  from  that 
date  was  placed  at  5  %  of  the  taxable  income  derived  from  unimproved 
real  estate.  The  tax  on  improved  real  estate  was  fixed  at  4%  of  the 
net  income  derived  therefrom. 

The  other  three  classes  of  taxes  under  this  head  were  annulled  for 
state  purposes  by  the  law  of  July  31,  1917  and  in  their  place  were  sub- 
stituted what  are  known  as  the  scheduled  income  taxes  mentioned 
below.  (3-b). 

(2)  Taxes  Assimilated  to  the  Direct  Taxes: — This  is  a  very  old  group 
of  taxes  on  carriages,  horses,  mules,  billiards,  clubs,  the  verification  of 
weights  and  measures,  et  cetera.  Under  this  head  are  classed,  also,  taxes 
on  goods  in  mortmain  and  on  mining  rents. 

Special  Note — on  collections: — Not  only  does  the  state  collect 
its  own  revenues  under  the  foregoing  taxes,  but  it  also  collects 
additional  taxes  {centimes  additionnels)  for  the  benefit  of  the 
departments,  communes,  bourses  and  chambers  of  commerce 
and  for  worlangmen's  accident  guaranty  funds.  When  the  real 
estate  taxes  were  changed  in  19 14  provision  was  made  that  the 
government  should  continue,  until  some  other  plan  could  be 
adopted,  to  collect  on  the  old  basis  the  centimes  additionnels 
for  the  benefit  of  the  local  treasuries. 

(3)  Income  Taxes: — ^These  taxes  fall  under  two  heads. 

(a)  The  general  income  tax  enacted  July  15,  1914  as  amended.  The 
first  imposition  of  this  tax,  on  account  of  war  conditions,  was  deferred 
from  January  i,  19 15  to  January  i,  19 16. 

The  tax  now  applies  to  taxable  incomes  in  excess  of  6,000  francs  and 
is  graduated.  The  income  to  be  taxed  is  computed  by  adding  together 
one-25th  of  the  taxable  income  between  6,000  and  20,000  francs;  two- 
25ths  of  that  between  20,000  and  30,000  francs  and  so  on,  increasing 
one-25th  for  each  10,000  francs  up  to  100,000  francs,  then  for  each 
25,000  francs  up  to  400,000,  then  for  each  50,000  up  to  550,000  and  the 
whole  of  the  excess.  The  rate  of  tax  on  the  income  as  thus  calculated 
is  50  per  cent.  There  are  exemptions  and  reductions  to  suit  special 
conditions.    Unmarried  or  divorced  persons  without  dependents  and 


190  J  BANKERS  TRUST  COMPANY 

married  persons  over  30  years  old  without  children  are  subject  to  a 
higher  rate. 

(b)  Scheduled  income  taxes,  enacted  July  31, 1917  as  amended,  upon 
industrial,  commercial  and  agricultural  profits  and  upon  salaries,  wages, 
pensions,  annuities  and  professional  incomes. 

(4)  War  Profits  Tax: — ^This  tax  was  levied  under  the  law  of  July  i, 
19 1 6,  as  amended.  It  taxed  excess  profits  during  war  trade  years  over 
pre-war  standard  profits;  this  standard  being  the  average  of  the  last 
three  years  prior  to  August  i,  19 14. 

The  tax  is  50%  of  the  excess  profits  of  the  individual  or  corporation 
on  the  portion  of  the  taxable  profits  below  100,000  francs,  then  60% 
on  profits  up  to  250,000  francs,  70%  up  to  500,000  and  80%  of  any 
excess.  The  tax  cannot  be  less  than  6%  of  the  capital,  or  on  less  than 
5,000  francs  in  amount.  This  provision  was  to  take  care  of  concerns 
started  since  the  war,  as  well  as  of  individuals  or  intermediaries  who 
did  not  work  with  capital.  As  a  concession  to  the  small  business  man, 
the  first  5,000  francs  of  the  excess  profits  was  exempted  from  taxation. 

Repeal: — This  tax  was  repealed  by  the  act  of  June  25,  1920 — but 
it  was  estimated  that  payments  then  due  would  amount  during  192 1  to 
4,000  million  francs.  The  collections  apparently  amounted  to  3,169 
million. 

(5)  Registration: — This  important  group  of  taxes  also  dates  from 
the  revolution,  succeeding  similar  taxes  levied  under  the  monarchy. 
It  covers  transfers  of  property,  real  or  personal,  by  sale  or  by  gift, 
between  living  persons,  or  by  inheritance;  mortgages  and  other  legal 
agreements. 

(6)  Stamps: — This  correlative  group  is  intended  to  reach  all  trans- 
actions not  caught  in  the  "registration"  net.  Legal  agreements  must 
be  written  on  stamped  paper.  Cheques,  receipts,  insurance  policies, 
trademarks,  passports,  cards  of  admission  to  clubs  or  public  meetings, 
shooting  licenses,  transportation  contracts  must  all  have  revenue  stamps 
affixed. 

The  value  of  the  stamps  to  be  affixed  to  documents  depends  either 
on  the  size  of  the  document,  or  on  the  value  dealt  with. 

(7)  Bourse: — These  are  taxes  on  stock  exchanges  and  commercial 
exchanges  transactions. 

(8)  Stocks  and  Bonds: — Taxes  upon  the  income  from  transferable 
securities.  These  taxes  which  have  been  levied  since  1875  (act  of 
June  29,  1872)  are  based  upon  previous  laws  dating  back  to  1850.  A3 
at  present  administered  they  are  based  upon  the  revenue  law  of  July  31, 
1872  as  amended  by  subsequent  laws  (especially  the  laws  of  March  29, 
1914,  December  30,  1916  and  July  31,  1917)-  They  apply  to  incomes 
derived  from  dividends,  interest,  annuities,  and  all  other  income  derived 
from  stocks,  bonds  and  interests  in  partnerships  ("commandites") 
either  domestic  and  foreign.  This  law  also  taxes  the  income  from 
mortgages,  time  deposits  and  money  deposited  as  security.  This  group 
of  taxes  would  more  properly  be  classified  with  the  Direct  Taxes,  but  we 


FRENCH  PUBLIC  FINANCE  [  I9I 

have  thought  best  in  order  to  facilitate  reference  to  the  official  revenue 
reports  to  follow  the  classification  used  therein. 

(9)  Special  Tax  on  Payments — ''Luxury  Tax'*: — This  tax  was 
authorized  by  the  law  of  December  31,  19 17  and  subsequent  amend- 
ments. It  imposed  a  tax  of  10%,  after  April  i,  19 18,  upon  the  payment 
of  the  purchase  price  of  any  merchandise,  commodity,  or  article  whatso- 
ever offered  for  sale  at  retail  or  for  consumption,  in  any  shape  or  form, 
by  a  merchant  or  by  a  person  not  a  merchant,  if  such  merchandise, 
commodity,  or  article  was  classed  as  a  luxury.  This  tax  was  succeeded 
by  the  tax  next  described. 

(10)  Turnover  Tax: — ^The  tax  on  the  chiffre  d'affaires,  or  volume  of 
business,  was  considered  the  most  important  and  likely  to  be  the  most 
productive  innovation  of  the  1920  budget.  Following  is  a  summary  of 
its  principal  features: — 

Effective: — From  and  after  July  i,  1920,  on  monthly  statements  of 
the  transactions,  separating  affairs  subject  to  1%,  3%  or  10%  tax,  if 
the  same  taxpayer  is  subject  to  all  three.  First  statement  and  payment 
to  be  made  in  September,  1920,  covering  two  preceding  months.  A  tax 
exceeding  100  francs  may  be  paid  by  crossed  cheque  (for  explanation 
see  page  262)  to  the  order  of  the  revenue  collector,  with  the  words 
"Banque  de  France"  between  the  bars. 

Taxable: — "Persons  who,  habitually  or  occasionally,  buy  in  order  to 
resell"  and  those  who  are  subject  to  the  tax  on  industrial  and  commer- 
cial profits  (law  of  July  31,  1917),  as  well  as  mine  operators,  etc.  The 
liability  of  a  person  to  pay  the  tax  is  determined  finally  by  the  collectors, 
but  the  artisan  working  on  his  own  account,  in  his  own  home  or  else- 
where, with  or  without  shop  or  shingle,  the  cobbler  and  the  dressmaker, 
even  the  fisherman,  are  all  likely  to  be  taxed.  Any  operation  in  the  na- 
ture of  brokerage,  as  an  occasional  commercial  operation,  is  taxed. 
Transactions  in  securities,  which  were  already  subject  to  stamp  and 
other  taxes,  are  not  subject  to  the  new  impost,  so  far  as  the  seller  and 
the  stock  exchange  broker  are  concerned,  but  the  bank  or  other  outside 
intermediary  pay  the  tax  on  the  amount  of  their  remuneration. 

Exemptions: — The  liberal  professions,  subject  to  other  taxation,  are 
exempt,  as  are  commercial  travelers  (but  not  commission  merchants) 
and  farmers  when  they  sell  their  own  produce;  public  service  corpora- 
tions charging  fees  fixed  by  the  government;  the  sale  of  bread;  certain 
forms  of  cooperative  societies;  cabs,  ferries,  etc.,  which  are  already 
subject  to  sufficient  taxation,  and  a  few  other  classes  of  business. 

Volume,  Measure  of  Tax: — This  tax  is  entirely  apart  from  any  profits 
tax.  There  may  be  a  loss  on  the  business,  but  the  tax  on  its  volume  is 
paid. 

Luxuries: — ^Articles  of  luxury  are  taxed  10%  only  when  sold  at  retail, 
for  consumption.   When  sold  to  merchants,  wholesale,  the  tax  is  1.1%. 

Foreign  Trade: — Imports  and,  to  an  extent  that  would  not  hamper 
trade,  exports  are  subject  to  the  tax. 


192  J  BANKERS  TRUST  COMPANY 

Certain  types  of  business,  such  as  restaurants  and  lodging  places, 
have  the  alternative  of  reporting  and  paying  annually,  instead  of 
monthly,  under  conditions  established. 

Yield: — ^The  estimated  yield  of  this  tax  in  1920  (six  months  only) 
was  2,084  million  francs — the  actual  yield  was  942  million.  The  esti- 
mate for  192 1  was  2,700  million  being  at  the  rate  of  225  million  a  month. 
The  actual  yield  was  1,898  million  being  at  the  rate  of  about  150  million 
a  month. 

(11)  Customs: — Import  duties,  navigation,  fines  and  confiscations. 
Sugar  and  salt  duties  are  not  included  in  table  figures  for  customs,  but 
all  receipts  from  these  are  given  in  items  (14)  and  (15). 

(12)  Excise  {Contributions  Indirectes): — Dues  on  beverages  such  as 
wine,  beer,  cider,  perry  (pear  cider),  mead,  alcohol,  mineral  water, 
pharmaceutical  preparations,  stearine  and  candles,  cycles,  licenses  to 
autos,  wine  cellars  and  public  passenger  vehicles;  tax  on  passenger  traffic, 
rail  and  carriage;  tax  on  playing  cards,  etc. 

(13)  Colonial  Goods  and  Substitutes' for  Coffee  and  Vanilla: — Coffee, 
cocoa,  chocolate,  spices,  tobacco,  etc. 

(14  to  17)  Salt  and  Sugar: — Salt  taxes  are  among  the  oldest  in 
France,  dating  from  the  early  days  of  the  monarchy.  Salt  and  sugar 
are  now  taxed  both  through  the  customs  and  through  the  internal  rev- 
enue.  The  same  is  true  of  gasoline,  benzol  and  similar  products. 

(18)  Monopolies  and  State  Industries: — In  France  the  state  has  a 
monopoly  of  the  manufacture  and  sale  of  chemical  matches,  tobacco 
and  gunpowder.  It  also  operates  the  posts,  telegraphs  and  telephones 
and  is  in  receipt  of  income  from  the  net  produce  of  the  mint,  the  na- 
tional printing  press,  the  state  railways  and  various  other  activities. 

(19)  State  Properties: — ^The  chief  items  are  the  rivers,  sea  fisheries, 
military  payments,  establishments  administered  by  the  state  such  as 
studs  and  thermal  establishments,  sale  of  state  property,  sale  of  land, 
profits  of  manufacture,  unclaimed  legacies  and  the  state  forest  products. 

(20)  Recettes  d'Ordinaire: — ^These  include  receipts  from  the  uni- 
versities; fines;  amounts  held  back  for  pensions  from  salaries  of  civil 
officials  and  from  naval  and  military  officers;  receipts  from  the  contribu- 
tions paid  by  the  colonies  to  military  expenses  and  from  repayments 
made  by  the  railway  companies  for  loans  made  to  them  for  guaranties 
of  interest  and  other  items. 

(21)  Miscellaneous  Receipts: — Patents;  railway  departments  for 
state  control;  repayment  by  departments  and  communes  of  advances 
made  to  them;  loans  from  departments  and  communes  for  the  construc- 
tion of  local  roads  and  for  the  improvement  of  school  buildings. 

(22)  Exceptional  Resources: — Under  this  heading  are  included  all 
unusual  and  adventitious  receipts,  such  as  indemnities,  the  share  of  the 
state  in  the  profits  of  the  exhibition  of  1900.  the  sale  of  surplus  war 
material,  etc. 

(23)  Collections  in  Algeria. 


Chapter  XVI 
The  National  Debt 

Tj^OUR  centuries  ago,  in  the  year  1522,  the  first  stone  was 
■^  laid  in  the  debt  structure  of  France.  It  was  in  that  year 
that  Francis  I  borrowed  200,000  livres,  equal  today  perhaps 
to  one  million  dollars.  The  purpose  of  the  loan  was  to  meet 
the  expenses  of  war  with  Charles  V,  Emperor  of  the  German, 
or  Holy  Roman,  empire. 

The  last  and  greatest  addition  to  the  debt  came  with  the 
recent  war  against  German  aggression,  while  previous  to  this 
the  greatest  addition  to  the  debt  in  modern  times  was  made 
necessary  by  the  Prussian  or  German  war  of  1 870-1 871. 

Debt  During  the  Monarchy 

The  wars  and  the  extravagances  of  the  grand  monarchs 
caused  them  always  to  be  in  need  of  money.  They  were  not 
at  all  sensitive  as  to  the  claims  of  their  creditors  and  did  not 
hesitate  repeatedly  and  arbitrarily  to  readjust  their  debts. 

The  Swiss  banker,  Necker,  several  times  finance  minister 
for  Louis  XVI  and  first  finance  minister  under  the  revolu- 
tionary government,  estimated  that  in  1783,  the  interest 
charge  and  annuities  called  for  annual  payments  of  207  mil- 
lion francs  and  represented  a  capitalized  debt  of,  say  3,400 
million  francs. 

Debt  During  the  Revolution 

Ten  years  later  the  National  Assembly,  in  order  that  "all 
fortunes  in  credits  upon  the  nation  might  be  perfectly 
known",  provided  that  all  creditors  of  the  state  should  have 

[193 


194  J  BANKERS  TRUST  COMPANY 

their  names,  and  the  amounts  due  them  annually,  registered 
in  the  Great  Book  of  the  Public  Debt.  The  holders  were  also 
required  to  exchange  the  various  forms  of  obligation  held  by 
them  for  new  bonds  of  a  uniform  character.  M.  Cambon,  the 
financier  of  the  revolution,  proposed  this  measure  because 
he  believed  that  if  the  people  held  the  securities  of  the 
revolutionary  government  they  would  be  interested  in  its 
stability. 

Capitalizing  ordinary  borrowings  at  5  per  cent  and  annui- 
ties at  10  per  cent.,  the  total  capital  of  the  debt  then  aggre- 
gated 6,626  million  francs. 

Holders  of  the  old  debt  who  failed  to  present  their  certi- 
ficates for  registration  and  exchange,  or  who  failed  to  collect 
the  arrears  of  interest  due  them  were  penalized  by  the  suc- 
cessive reduction  of  these  arrears  to  80,  50,  20,  5  per  cent., 
and  finally  by  the  cancellation  of  outstanding  certificates 
and  arrears. 

Interest  on  the  readjusted  debt  was  paid  in  assignats  at 
their  face  value  until  February  18,  1796.  After  this  date  it 
was  paid  in  assignats  at  the  rate  of  10  francs  for  each  franc 
of  interest  due.  After  the  abolition  of  paper  money  in  July, 
1796,  interest  was  paid  one-fourth  in  cash  and  three-fourths 
in  bills  on  the  national  domains,  called  "three  quarter  bills". 
This  was  practically  equivalent  to  the  payment  of  three- 
fourths  in  assignats. 

In  1797  the  service  of  the  debt  called  for  258  million 
francs.  This  was  considered  to  be  "  a  sum  far  superior  to  the 
means  of  the  republic".  Therefore,  it  was  proposed  to  pay 
only  one  third  of  it,  or  86  million  and  to  pay  off  the  capital 
itself  of  the  remaining  two-thirds  in  national  domains.  The 
third  retained  was  called  the  "consolidated  third".  This 
third  was  to  remain  inscribed  in  the  great  book  and  was  de- 


FRENCH  PUBLIC  FINANCE  [  I95 

clared  to  be  "exempt  from  all  stoppage,  present  or  future". 
The  other  two-thirds  was  paid  off,  at  the  rate  of  twenty 
times  the  annual  interest,  in  notes  receivable  for  national 
domains.  As  M.  Thiers,  the  great  statesman  and  historian  of 
this  period,  says,  "for  those  who  did  not  wish  to  purchase 
lands,  this  was  an  absolute  bankruptcy".  As  most  of  the 
creditors  of  the  state  were  too  poor  to  buy  lands  this  two- 
thirds  was  virtually  a  total  loss  to  them. 

M.  Thiers  claims  that  "this  measure  was  inevitable". 
"The  Republic",  he  says,  "did  in  this  instance  as  she  has 
always  done:  all  engagements  beyond  her  ability  she  had 
fulfilled  with  lands,  at  the  price  to  which  they  had  fallen.  It 
was  in  assignats  that  she  had  paid  the  old  charges,  as  well  as 
all  of  the  expenses  of  the  revolution  and  it  was  with  lands 
that  she  had  paid  off  the  assignats.  It  was  in  assignats,  that 
is,  with  lands,  that  she  had  discharged  the  interest  of  the 
debt,  and  it  was  with  lands  that  she  now  finished  by  discharg- 
ing the  capital  itself".  He  concludes,  "measures  of  this 
nature  inflict,  like  revolutions,  much  individual  hardship;  but 
people  must  submit  to  them  when  they  have  become  inevi- 
table". At  the  end  of  the  Directory  the  one-third  which 
continued  to  be  inscribed  in  the  great  book  of  the  debt, 
known  as  the  "consolidated  third,"  represented  a  capital  of 
920  million  francs,  calling  for  an  annual  charge  of  46  million 
in  addition  to  annuity  payments  of  29  million. 

The  Debt  under  Napoleon 

One  of  the  first  steps  taken  by  Napoleon  under  the  consu- 
late was  to  reduce  the  finances  to  order.  He  reorganized  the 
debt  of  which  there  were  afloat  more  than  sixty  descriptions, 
all  more  or  less  depreciated.  These  he  caused  to  be  bought 
up,  or  he  directly  refunded  them  by  giving  perpetual  rentes 


196]  BANKERS  TRUST  COMPANY 

in  exchange  for  an  amount  proportionate  to  their  nominal 
value.  These  operations  increased  the  debt  charge  by  about 
25  per  cent.  Thus,  upon  the  completion  of  these  adjust- 
ments (say  1 801-1802),  the  annual  charge  was  about  100,- 
000,000  francs,  which  capitalized  at  5  per  cent  would  repre- 
sent an  amount  of  perhaps  2,000  million. 

The  effect  of  these  sane  efforts  was  to  revive  public  credit 
and  to  make  the  moneyed  classes  among  the  staunchest  sup- 
porters of  the  consulate. 

This  good  beginning  in  the  rehabilitation  of  the  national 
finances  was  continued  ujtider  the  empire.  Except  for  the  re- 
funding operations  referred  to  above.  Napoleon  did  not  have 
recourse  to  loans  until  just  at  the  close  of  hijs  career.  He  de- 
clared them  to  be  "both  immoral  and  disastrous",  claiming 
that  borrowing  "insensibly  undermines  the  edifice  of  state, 
and  exposes  one  generation  to  the  curses  of  the  next". 

Napoleon  s  War  Levies 

The  principal  reason  which  made  it  possible  for  Napoleon 
to  carry  on  war  without  borrowing  and,  in  fact,  without 
special  taxation  for  the  purpose,  was  the  unbroken  success 
of  his  earlier  campaigns.  This  made  it  possible  for  him  to 
compel  the  countries  which  he  conquered  not  only  to  support 
his  armies  but  also  to  make  him  large  contributions  in  money 
and  in  property.  The  exact  amount  of  these  receipts  is 
not  known,  but  they  must  have  been  very  large.  In  181 1 
Napoleon  himself  placed  the  amount  at  more  than  a  billion 
francs.  Out  of  these  funds  Napoleon  rewarded  his  officers, 
established  pension  funds  for  his  soldiers  and  provided  for 
their  maintenance  when  in  the  field;  provided  for  gifts  to 
the  new  nobility,  for  public  works  and  even  supplemented 
the  civil  budget. 


FRENCH  PUBLIC  FINANCE  [  I97 

In  1813,  after  the  disastrous  Russian  campaign,  Napoleon 
made  a  small  issue  of  rentes. 

At  the  close  of  the  Napoleonic  regime  the  annual  debt 
charge  was  63  million  francs,  representing  a  principal  sum 
upwards  of  1,200  million  francs.  There  was  also  a  large  float- 
ing debt  of  uncertain  amount. 

Debt  of  the  Restoration 

When  the  Bourbons  again  sat  upon  the  throne  of  France  it 
was  natural  that  they  should  recognize  the  claims  of  the  old 
nobility  and  others  for  reimbursement  of  losses  sustained 
during  the  revolutionary  period.  The  sum  due  to  the  army  for 
arrears  of  pay  and  the  amounts  due  for  supplies  were  very 
heavy.  There  was  also  an  indemnity  of  700  million  francs 
paid  to  the  allies,  increased  to  about  1,100  million  by  paying 
oflF  the  troops  of  the  army  of  occupation.  Therefore,  the  debt 
grew  rapidly  and  at  the  time  of  the  revolution  of  August, 
1830,  called  for  an  annual  charge  of  about  220  million  francs. 
The  capital  of  the  consoHdated  debt  was  around  4,700  million 
francs.   The  unfunded  debt  raised  the  total  to  5,182  million. 

Debt  Under  the  Orleanists  and  the 
Second  Republic 

During  the  18  years  of  the  Orleanist  dynasty  and  the  five 
years  of  the  second  republic,  the  debt  increased  1,457  million 
francs  in  capital  to  6,639  million,  but,  due  to  successful  re- 
funding operations,  the  debt  charge  grew  only  about  39  mil- 
lion, standing  at  262  million  francs  on  January  i,  1853. 

The  Debt  Under  the  Second  Empire 

During  the  reign  of  Napoleon  III  there  was  a  heavy  in- 
crease both  in  the  principal  of  the  debt  and  in  the  debt  charge. 


198  ]  BANKERS  TRUST  COMPANY 

It  was  a  period  of  many  small  but  expensive  wars.  There  was 
the  Crimean  war,  the  Italian  war,  a  Chinese  war,  the  occupa- 
tion of  Rome  and  of  Syria  and  the  ill-fated  Mexican  expedi- 
tion. 

Napoleon  III  expended  large  sums  on  great  public  works. 
It  was  during  his  reign  that  Paris,  as  we  know  it  today,  with 
its  boulevards  and  parks,  its  opera  house  and  other  beautiful 
modern  buildings,  was  created.  Other  large  cities  likewise 
were  beautified  and  their  sanitary  condition  was  much  im- 
proved; roads  and  railroads  were  built. 

These  large  expenditures  for  war  and  for  social  better- 
ment greatly  exceeded  the  yield  of  the  taxes,  necessitating 
important  borrowing  operations. 

On  the  other  hand,  during  this  period  two  successful  con- 
versions of  the  debt  were  arranged.  In  1852  the  five  per  cent 
rentes  were  refunded  into  4^  per  cents,  while  ten  years  later 
these  4>^  per  cents  were  converted  into  3  per  cents.  The  first 
operation  resulted  in  a  saving  in  annual  interest  of  17,500,000 
francs,  while  less  than  75  million  francs  of  capital  had  to  be 
paid  to  dissenting  creditors.  In  the  conversion  of  1862,  the 
state  made  no  saving  in  interest,  but  it  gained  a  premium  of 
over  160  million  francs.  However,  this  gain  was  at  the  ex- 
pense of  the  heavy  increase  of  almost  1,500  million  in  capital, 
thus  precluding  for  a  long  time  the  possibility  of  further  con- 
versions. The  net  result  of  the  debt  financing  during  this 
period  was  an  increase  of  123  million  francs  in  the  annual 
charge  and  an  increase  in  the  capital  of  the  debt  of  almost 
exactly  6,000  million  francs. 

The  War  of  1870-1871 

The  disastrous  war  of  the  seventies  with  Prussia  and  the 
renewed  German  empire  added  another  9,000  million  francs 


FRENCH  PUBLIC  FINANCE  [  I99 

to  the  debt,  and  tripled  the  debt  charge.  More  than  half  of 
this  increase  was  necessitated  by  the  payment  of  the  five 
billion  francs  indemnity  to  Germany  which  we  have  already 
discussed  in  chapter  xi. 

The  Debt  Under  the  Third  Republic 

The  next  important  increase  in  the  debt  was  occasioned 
in  carrying  out  a  great  scheme  of  public  improvements.  This 
was  known  as  the  Plan  Freycinet,  named  after  the  minister 
by  whom  it  was  conceived.  This  plan  was  especially  con- 
cerned with  the  improvement  and  extension  of  the  transpor- 
tation systems,  water  and  rail. 

The  plan  as  at  first  conceived  called  for  an  expenditure  of  a 
billion  francs.  To  obtain  the  means  for  its  execution  an  issue 
was  authorized  of  3  per  cent  rentes,  redeemable  by  annuities. 
Once  the  state  became  a  partner  of  the  railroads,  it  was 
hard  to  stop  expenditures  for  their  development.  Likewise  the 
highways,  the  water-ways,  the  ports  and  the  state  telegraph 
and  telephone  systems  called  for  large  amounts  of  capital. 
These  were  obtained  by  direct  loans  or  subventions  from 
the  state  or  by  state  guarantees  of  company  issues.  In  short, 
by  the  use  of  state  credit.  Thus  it  happened  that  by  the  close 
of  1913  the  capital  amount  of  the  debt  incurred  during  this 
period  for  constructive  purposes  must  have  been  around 
6,000  million  francs. 

During  the  period  of  forty  years  which  elapsed  between 
1873  and  1913  the  increase  in  the  capital  of  the  debt  was 
12,000  million  francs.  On  the  other  hand,  because  of  success- 
ful refunding  operations,  the  debt  charge  slightly  declined; 
from  1,196  million  francs  to  958  million.  In  1883,  a  saving 
at  the  annual  rate  of  34  million  was  made  by  converting  5 
per  cent  rentes  into  4>^'s;   and  without  any  increase  in  capi- 


200  ]  BANKERS  TRUST  COMPANY 

tal.  In  1887,  the  interest  on  certain  4^  per  cent  and  4  per 
cent  rentes  was  reduced  to  3  per  cent.,  without,  however, 
any  saving  in  annual  charge.  The  state  made  a  cash  gain  at 
the  time  of  174  million  francs,  but  the  operation  involved  an 
increase  in  capital  of  417  million.  Conversions  carried 
through  in  1894  and  1902,  respectively,  resulted  in  a  reduc- 
tion of  the  annual  charge  upon  6,788  million  of  rentes  first  to 
3/^  per  cent  and  then  to  3  per  cent.,  without  any  increase  in 
capital  and  with  an  actual  saving  in  annual  charge  of  over 
100  million  francs. 

Summary 

To  sum  up  the  story  of  the  debt  to  the  close  of  1913  we 
find  that  it  increased  from  about  2,000  million  francs  at  the 
close  of  the  revolutionary  period  to  nearly  34,000  million 
francs  at  the  close  of  the  period  of  armed  peace.  We  find 
that  this  increase  in  debt  may  be  apportioned  roughly  about 
one-third  to  public  works,  such  as  roads,  improvement  of 
rivers,  construction  and  improvement  of  canals  and  railroads, 
to  construction  of  docks,  to  works  of  sanitation,  to  building 
school  houses.  In  short,  to  works  of  a  constructive  character 
which  added  to  the  health,  the  pleasure  and  the  industrial 
status  of  the  nation.  The  other  two-thirds  of  debt  was 
dedicated  to  the  god  of  war. 

We  have  already  traced,  in  chapters  iii  and  iv,  the 
history  of  the  debt  during  the  period  of  the  great  war  and 
down  to  the  close  of  192 1. 

A  comparative  statement  of  the  debt  from  the  close  of 
the  Napoleonic  regime  in  181 5  until  today  and  a  detailed 
statement  of  the  debt  as  it  existed  on  December  31,  1921, 
together  with  descriptive  notes,  closes  this  chapter. 


FRENCH  PUBLIC  FINANCE 


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204  J  BANKERS  TRUST  COMPANY 


PUBLIC  DEBT  NOTES 

(i)  The  "Grand  Livre"  or  great  book  of  the  public  debt  was 
created  by  M.  Cambon,  financier  of  the  Revolution  in  1793.  It  is 
the  record  of  the  public  debt.  It  is  kept  by  a  special  office  under  the 
Ministry  of  Finance.  It  consists  of  many  series  of  volumes.  Besides 
the  Grand  Livre  kept  in  Paris  there  is  an  additional  Grand  Livre 
for  perpetual  debt  in  each  branch  of  the  treasury. 

Rentes: — The  records  of  the  Grand  Livre  are  kept  in  terms  of  the 
rente  or  annual  interest  payable  to  the  public  creditor  and  not  in 
terms  of  the  capital  or  principal.  Originally  the  interest  was  payable 
only  to  registered  holders,  but  at  the  present  time  the  public  debt  is 
issued  in  three  ways,  either  (i)  under  a  number  alone  in  the  case  of 
coupon  bonds  to  bearer  ("Rentes  au  porteur"),  or  (2)  registered  in 
the  name  of  the  holder  ("Rentes  nominatives").  An  "extract  from 
the  Grand  Livre"  or  "certificate"  is  issued  containing  either  (a)  a 
sheet  of  coupons  in  the  case  of  the  bonds  to  bearer,  which  coupons  are 
payable  to  the  bearer  thereof,  or  (b)  a  space  for  recording  payments  of 
interest  in  the  case  of  registered  bonds.  Such  registered  certificates 
must  be  presented  and  stamped  in  order  to  obtain  payment  of  the 
interest  thereon.  In  certain  instances  there  is  a  third  form  (3),  known 
as  "Mixed  Rentes"  which  correspond  to  American  bonds  registered  as 
to  principal  only.  These  are  in  registered  form,  but  are  accompanied 
by  coupons  which  are  payable  to  bearer. 

As  only  even  amounts  are  recorded  in  the  Grand  Livre  a  "promise 
to  pay"  is  given  in  place  of  the  certificate  for  any  odd  sum  in  centimes 
which  is  due  to  a  holder.  These  promises  to  pay  may  be  exchanged 
for  bonds  at  any  interest  payment  date  whenever  they  aggregate  a 
proper  amount  to  permit  the  issuance  of  a  certificate. 

Rente  issues  are  either  repaid  periodically  by  drawings  ("amor- 
tissable  rentes")  or  else  they  bear  no  date  of  maturity  and  are  per- 
petual. The  government  reserves  the  right  to  redeem  all  or  any  part 
of  most  issues  at  a  fixed  price  at  any  time  after  a  date  specified  in 
each  case. 

Rentes  are  officially  quoted  on  the  basis  of  the  income  derived 
therefrom  instead  of  on  the  basis  of  the  nominal  capital.  For  instance, 
fr.  10,000  nominal  capital  3  per  cents,  is  designated  as  fr.  300,  rentes 
3  per  cent.  The  face  of  a  French  bond  specifies  the  yearly  income 
produced  by  that  bond,  not  the  principal  amount  or  the  par  value 
of  the  bond  itself.  The  denomination  may  be  ascertained  by  calculat- 
ing the  sum  necessary  to  produce,  at  the  rate  of  interest  specified, 
the  amount  of  annual  income  stated  on  the  face  of  the  bond. 

Interest,  as  a  rule — whether  in  the  form  of  coupons  or  of  registered 
interest — is  paid  quarterly.  In  France  it  is  customary  to  cut  coupons 
two  weeks  before  the  date  when  they  fall  due.  This  custom  often 
results  in  bonds  being  sold  "ex-coupon"  at  times  which  seem  unusual 
to  the  American  investor.  Coupons  must  be  collected  within  five 
years  after  the  date  of  their  maturitv  (Law  of  August  24,  1793,  Article 


FRENCH  PUBLIC  FINANCE  [  205 

156).  Failure  to  cash  coupons  within  such  period  renders  them  not 
only  voidable  but  absolutely  void. 

Bonds  must  be  presented  for  payment  within  thirty  years  after 
the  date  of  their  maturity  or  redemption  date,  otherwise  they  become 
absolutely  void. 

A  "Lottery  Bond"  is  one,  the  holder  of  which  receives  a  prize 
in  money — irrespective  of  any  fixed  premium — provided  that  the 
number  of  the  bond  drawn  for  redemption  corresponds  to  the  number 
of  the  prize  ticket.  The  laws  of  the  United  States  forbid  the  sale  of 
lottery  bonds  in  this  country. 

(2)  3%  Perpetual  Rentes: — Four  issues  outstanding  dated  respec- 
tively (i)  May  10,  1886,  (2)  November  14,  1887,  (3)  January  10,  1891, 
and  (4)  December  21,  1901.  They  are  obtainable,  except  (4),  either 
as  coupon  bonds  to  bearer,  or  mixed  or  fully  registered.  Issue  (4)  is 
obtainable  only  in  coupon  and  fully  registered  form.  Coupon  rentes 
to  bearer  are  exchangeable,  free  of  charge,  for  fully  registered  or  mixed 
rentes.  Registered  rentes  can  only  be  exchanged  through  an  agent  de 
change  (member  of  the  bourse).  Perpetual  rentes  may  be  obtained  to 
yield  an  annual  income  in  francs  of  2,  3,  4,  5,  6,  7,  8,  9,  10,  20,  30,  50, 
100,  200,  300,  500,  1,000,  1,500  and  3,000.  Principal  and  interest 
exempt  from  all  taxation,  except  that  levied  in  accordance  with  the 
general  income  tax  law  (see  page  189,  3a). 

(3)  5%  Perpetual  Rentes  of  igis  and  of  IQ16: — For  terms  of  issue, 
etc.,  see  page  18.  These  two  issues  are  quoted  on  the  Paris  bourse 
as  one  loan.  Issued  in  coupon,  mixed,  or  fully  registered  form. 
Denominations  to  produce  rente,  5,  6,  7,  8,  9,  10,  20,  25,  50,  100,  200, 
300,  500,  1,000,  2,500  and  5,000  francs,  respectively.  They  have  the 
same  tax  exemptions  and  other  privileges  as  the  3%  perpetuarrentes. 

(4)  4%  Perpetual  Rentes  191 7: — For  terms  of  issue,  etc.,  see  page 
18.  Issued  in  three  forms,  coupon,  mixed,  or  fully  registered.  Coupon 
bonds  to  bearer  issued  in  denominations  to  produce,  respectively, 
4,  8,  20,  40,  80,  200,  400,  800,  2,000  and  4,000  francs  income  per  annum. 
Registered  bonds  are  issued  in  all  denominations.  They  have  the 
same  tax  exemption  as  "(2)." 

(5)  4%  Perpetual  Rentes  1918: — -For  terms  of  issue,  etc.,  see  page 
18.  Issued  in  three  forms,  coupon,  mixed,  or  fully  registered.  Coupon 
bonds  to  bearer  issued  in  denominations  to  produce,  respectively,  4,  8, 
20,  40,  80,  200,  400,  800,  2,000  and  4,000  francs  income  per  annum. 
Registered  bonds  are  issued  in  all  denominations.  They  have  the  same 
tax  exemption  as  "  (i)." 

(6)  6%  Perpetual  Rentes  1920: — Coupon  bonds  to  bearer  to  produce 
an  annual  income  of  6,  30,  60,  120,  600  and  1,200  francs.  Registered 
bonds  are  also  obtainable.  They  are  exempt  from  taxation  the  same 
as  "(i)." 


2o6  ]  BANKERS  TRUST  COxMPANY 

(7)  3%  AmortissaUe  Rentes: — The  1878  issue  of  these  bonds  made 
for  the  purchase  of  the  secondary  railway  lines.  Bonds  to  be  re- 
deemable by  drawings  in  75  years.  Subsequent  issues  were  made  in 
1881  and  1884.  All  issues  to  be  amortized  by  April  16,  1953.  Annual 
drawings  at  par  to  take  place  on  March  ist  of  each  year.  An  investor 
may  apply  for  an  even  distribution  of  his  holdings  over  all  the  series, 
in  which  case  the  average  life  of  his  bonds  would  be  i8>^  years  after 
April,  1922.  Issues  of  1878  and  1884  coupon  bonds  to  bearer  in  de- 
nominations to  produce  an  annual  income  of  15,  30,  60,  150,  300,  600, 
1,500  and  3,000  francs,  and  registered  bonds  to  produce  an  annual 
income  of  15  francs  or  multiples  thereof.  The  issue  of  1881  also  pro- 
vides for  mixed  rente  in  annual  income  amounts  of  15  francs  and 
multiples  thereof.     Principal  and  interest  exempt  from  all  taxation. 

(8)  3}4%  AmortissaUe  Rentes  of  191 4: — Coupon  bonds,  to  produce 
an  income  of  7,  14,  35,  70,  140,  350,  700,  1,400  and  1,750  francs, 
respectively.  Fully  registered  bonds  in  denominations  producing  7 
francs  of  annual  income  or  multiples  thereof  up  to  and  including 
700  francs  income;  from  700  francs  to  1,400  francs  income  in  multiples 
of  70  francs;  and  above  1,400  francs  annual  income  in  multiples  of 
140  francs  income.  Redeemable  serially  by  drawings  on  July  ist  of 
each  year  beginning  in  1915.    Exempt  from  taxation  same  as  "(2)." 

(9)  5%  AmortissaUe  Rentes  of  1920: — For  terms  of  issue,  etc., 
see  i^age  18.  This  loan  is  redeemable  in  60  years  at  150  francs.  The 
nominal  capital  is  divided  into  series  of  25  million  each  to  be  called 
for  payment  semi-annually  by  lot  on  the  i6th  of  March  or  i6th  of 
September  of  each  year.  The  first  drawing  was  effective  on  September 
16,  1920.  Bonds  drawn  are  payable  at  150%,  with  accrued  interest, 
at  the  next  interest  date.  Bonds  not  drawn  are  redeemable  at  150% 
at  any  time  at  the  option  of  the  government.  Coupon  bonds,  to 
produce,  respectively,  5,  10,  20,  25,  50,  100,  200,  500  and  1,000  francs 
income  per  annum.  Registered  bonds  in  multiples  of  100  francs 
principal.    Exempt  from  taxation  the  same  as  "(i)-" 

(10)  Two- Year  Treasury  Bills  {"Bons  du  Tresor  a  deux  ans"): — A 
new  issue  in  June,  1921,  in  denominations  of  500  francs.  Exempt  from 
taxation.  Issued  to  order  or  to  bearer.  May  be  exchanged  for  new 
permanent  loans. 

(11),  (12)  and  (13)  Bonds  {'*  OUigations'')  of  National  Defense: — 
This  class  of  bonds  was  first  put  on  sale  in  the  early  part  of  191 5.  The 
first  issue  which  would  have  matured  in  1925,  but  was  redeemable  in 
1920,  appears  to  have  been  retired.  The  five  year  obligations  are  dated 
as  of  the  first  or  sixteenth  of  the  month  in  which  they  were  issued  and 
are  payable  five  years  after  the  date  of  issue,  the  government  reserving 
the  right  of  redemption  one  year  after  the  date  of  issue  and  the  holder 
having  the  privilege  of  calling  for  payment  at  the  end  of  any  six  months 
thereafter. 

The  six  year  obligations  were  issued  at  various  times  after  May  16, 


FRENCH  PUBLIC  FINANCE  [  20/ 

1919.  They  have  no  specified  date  of  maturity,  but  are  repayable 
six  years  after  date  of  issue,  at  103.  The  holder  has  the  right  to  demand 
payment  at  periods  after  date  of  issue  as  follows:  18  months  at  par; 
2  years  at  100.60;  3  years  at  101.20;  4  years  at  101.80;  5  years  at  102.40. 

The  ten  year  obligations  were  issued  at  various  times  after  May  16, 
19 19.     Interest  on  all  issues  is  payable  in  advance. 

All  issues  are  in  either  coupon  or  registered  form  and  in  denomina- 
tions of  100,  500,  1,000,  5,000,  10,000,  100,000  francs  of  principal.  The 
principal  and  interest  of  all  issues  are  exempt  from  all  taxes. 

The  issue  of  all  categories  of  National  Defense  Obligations  has  been 
suspended  since  February  16,  1922. 

(14)  Railroads,  debt  for  purchase  of  and  on  account  of  construction 
and  improvement  of  state  lines.  Certain  of  the  railroad  lines  in  France 
are  owned  by  the  nation  and  others  have  been  aided  by  issues  of 
government  bonds.  We  have  grouped  all  of  these  various  issues  in  our 
table.  The  figure  given  in  the  debt  table  does  not  represent  the  total  capi- 
tal debt  of  the  railways,  but  simply  the  capitalization  of  the  annui- 
ties due  to  the  companies  (and  others)  by  the  state  for  various  causes. 

(15-17)  Sundry  trust  funds  upon  which  the  government  makes 
annual  payments. 

(18)  See  (20). 

(19)  Credit  National: — The  Credit  National  is  an  institution 
organized  under  the  law  of  October  10,  1919,  with  a  capital  of  100  mil- 
lion francs,  to  finance  the  reconstruction  of  the  devastated  regions.  (See 
page  90).  The  bonds  of  the  Credit  National  are  guaranteed,  principal, 
interest,  premiums  and  lottery  payments  by  the  French  government. 
These  payments  are  a  charge  upon  all  French  taxes,  present  and  future, 
and  are  specifically  provided  for  by  an  annuity  in  the  budget  of  the 
state.  These  are  lottery  bonds.  The  terms  upon  which  the  bonds  are 
issued  and  payable  are  as  follows: 

(19a)  5^  of  iqiq: — This  issue  made  in  December,  1919,  is  for  a 
nominal  capital  of  4  billion  francs  in  bonds  of  500  francs  each  repayable 
in  75  years  at  a  maximum  of  600  francs,  but  by  lot.  The  drawings 
take  place  quarterly  on  the  first  days  of  March,  June,  September  and 
December  of  each  year.  The  Credit  National  is  forbidden  to  repay 
the  bonds  of  this  series  before  January  i,  1940.  After  that  date  they 
may  repay  the  bonds  in  whole  or  in  part  at  600  francs  for  each  500 
franc  bond.  The  drawings  cease  when  all  the  bonds  have  been  called 
for  payment.  At  each  annual  drawing  prior  to  1940  four  bonds  will 
be  paid  at  i  million  francs  each,  four  at  500,000  francs  each,  20  at 
100,000  francs  each  and  40  at  50,000  francs  each;  in  all  68  lots  for  a 
total  of  10  million  francs. 

(19b)  5s  of  iQ2o: — This  issue  made  in  June,  1920,  is  for  a  nominal 
capital  of  4  billion  francs  in  bonds  of  500  francs  each.  These  bonds 
are  repayable  at  par  or  by  lottery  in  75  years  at  the  outside.    After 


208  ]  BANKERS  TRUST  COMPANY 

the  first  of  January,  1941,  the  Credit  National  has  the  right  to  repay 
the  bonds  then  remaining  in  circulation  in  whole  or  in  part  vat  par. 
The  drawings  take  place  as  follows:  There  are  eight  drawings  a  year, 
January  and  July;  February  and  August;  April  and  October;  May  and 
November,  for  a  total  of  104  bonds  having  a  par  value  of  20  million 
francs.  Each  drawing  comprises  the  following  prizes:  i  bond  for  i 
million  francs;  i  for  500,000  francs;  2  for  200,000  francs  each;  3  for 
100,000  francs  each  and  6  for  50,000  francs  each. 

(19c)  6s  of  iQ2i: — This  issue  is  for  a  nominal  capital  of  3  billion 
francs  in  bonds  of  500  francs  each,  repayable  in  15  years  at  par.  This 
issue  is  entitled  to  the  benefit  of  annual  drawings  as  follows:  From  192 1 
to  1930,  inclusive,  two  bonds  reimbursable  at  500,000  francs  each; 
24  at  100,000  francs  each;  24  at  50,000  francs  each;  96  at  10,000  francs 
each;  96  at  5,000  francs  each;  6,960  at  1,000  francs  each,  altogether 
7,202  lots  per  annum  for  a  total  of  13  million  francs  per  annum. 
Drawings  to  take  place  on  the  first  days  of  March,  June,  September 
and  December.  The  prizes  under  500,000  francs  are  equally  divided 
between  six  series  of  i  million  bonds  each.  There  are  two  drawings, 
respectively,  of  10,000  numbers  and  of  100  numbers.  The  first  gives 
the  last  four  figures  of  the  numbers  drawn  and  the  second,  successively, 
the  two  preceding  figures  of  each  of  those  in  the  six  series.  Bonds 
remaining  outstanding  in  193 1  are  subject  to  drawings  at  par  at  the 
rate  of  i  million  bonds  a  year.  The  last  drawing  is  September  1st, 
1936.  Bonds  drawn  are  payable  either  at  the  Bank  of  France  or  at  its 
branches  or  auxiliary  bureaus. 

(i9d)  6s  of  1922: — Offering  was  unlimited.  ^  Amount  sold  4,730 
million  francs.  Bonds  500  francs  each.  Issue  price  497.  Subscription 
price  482  because  first  coupon  was  paid  in  advance. 

Payable  at  the  option  of  the  owner  at  500  francs  February  i,  1924; 
507  francs  50c.  February  i,  1927;  525  francs  February  i,  1932.  Interest 
payable  February  5  and  August  5.    Issued  free  of  all  taxes. 

(20)  Public  loans  contracted  by  sinistres  {unfortunates)  of  the  war 
and  secured  by  pledges  of  state  annuities: — 

(In  francs — 000  omitted) 
Borrowers  Amounts 

City  of  Reims 120,000 

City  of  Albert 25,000 

City  of  Soissons 80,000 

City  of  Verdun 55.ooo 

City  of  La  Bassee 14,695 

Department  of  the  North  .........  150,000 

French  Sugar  Industries  in  Reconstruction.    .  200,000 

Alsatian  Industries 85,000 

Metallurgical  Industries 500,000 

Thomson-Houston  Co.  of  Lille 185,000 


FRENCH  PUBLIC  FINANCE  .  [  209 

Electrical  Energy  and  Lighting  Co.   of  the 

North  and  of  the  East 82,500 

Metallurgical  Sinistre 86,000 

Reconstruction  of  Factories 20,362 

Manufacturers  of  Glass  and  Chemical  Products 

of  St.  Gobain,  Chauny  and  Cirey   ....  87,200 

Factories  for  Electrical  Construction  at  Jeu- 

mont 25,000 

Co-operative    Group    for    Reconstruction    of 

Churches  in  the  Diocese  of  Nancy    .    .    .  15,000 

Group  of  Coal  Operators  of  the  Nord  and  Pas 

de  Calais 1,200,000 

Maison  Brequet 5,096 

Co-operative    Group    for    Reconstruction    of 

Churches  in  Devastated  France    ....        200,000 

Society  of  Miners  of  Lens 106,000 

Co-operative  Group  for  Reconstruction  of  Le 

Thour 14,600 

3,256,453 

The  amount  of  these  loans,  say  3i2S6  million  francs,  is  not  taken  into  the  public 
debt  total.  They  are  in  effect  contracted  by  the  interested  parties  for  the  immediate 
realization  of  annuities  given  them  by  the  nation  and  figure  in  the  debt  under  the  head 
of/ 'Annuities"  (Item  18)  for  the  sum  of  3,770  million. 

The  annual  charge  is  covered  in  the  annuities  charge  of  600  million  as  given  above, 
of  Iwhich  about  302  million  is  for  this  purpose. 

All  guaranteed,  principal  and  interest,  by  the  French  Government. 

(21)  Floating  Debt: — Treasury  Bills  (Bons  du  Tresor;  Bons  de  la 
Defense  Nationale)  (see  page  15);  Bank  of  France  advances  (see  pages 
13,  42,  265). 

(22)  Foreign  Debt: — Political:  See  page  136. 

Miarket  loans  obtained  in  the  United  States  by  the  French  Govern- 
ment or  for  which  it  is  liable: 

Republic  of 

France  $97,000,000    T}4    J.  &  Dec.  June     i,  1941 

do  96,000,000    8         Mar.  &  Sept.  15     Sept.  15,  1945 

Payable   at    no.      Sinking    Fund    purchases  $4  million 
annually  at  no  up  to  1925;  draws  by  lot  at  no  thereafter. 

Bordeaux     $15,000,000    6        M.  &  N.  Nov.    i,  1934 

Lyons  15,000,000    6        M.  &  N.  Nov.     i,  1934 

Marseilles       15,000,000    6        M.  &  N.  Nov.    i,  1934 

Market  loans  obtained  in  United  Kingdom,  Japan,  etc. — ^These 
loans  are  either  in  the  form  of  Treasury  Bills  or  of  Bank  Credits. 


Chapter  XVII 
Local  Finance 

A  S  already  explained  in  the  chapter  on  government, 
■*-  ^  France  is  divided  for  administrative  purposes  into 
departments,  districts,  cantons  and  communes.  The  first  and 
the  last  of  these  are  the  only  ones  having  budgets.  The  local 
communities  are  to  a  great  degree  masters  of  their  finances. 
The  annual  budget  estimates  are  prepared  by  local  officials 
and  the  budgets  are  adopted  by  the  local  councils.  However, 
before  they  become  effective  the  budgets  must  be  approved 
by  the  central  authorities.  The  departmental  budgets  and 
those  of  the  important  communes  must  be  approved  by  the 
president  of  the  republic,  and  those  of  the  small  communes  by 
the  prefects. 

The  Receipts 

The  revenues  of  the  departments  and  communes  are  de- 
rived in  part  from  collections  made  for  their  account  by  the 
general  government,  in  part  by  an  allotment  of  a  share  of  the 
taxes  collected  for  the  general  government  and  in  part  from 
direct  local  imposts. 

Ever  since  the  revolution  the  state  when  collecting  the 
old  fdirect  and  assimilated  taxes  has  collected  at  the  same 
time  an  additional  amount  for  account  of  the  departments 
and  communes. 

In  1872,  out  of  total  collections  of  604  million  francs, 
57.88  per  cent,  was  retained  by  the  state,  22.46  per  cent,  was 
passed  on  to  the  departments  and  19.66  per  cent,  went  to  the 
communes.    These  percentages  were  substantially  unchanged 

t  See  notes  (i)  and  (2),  pages  188  and  189 
210] 


FRENCH  PUBLIC  FINANCE 


[  211 


in  1913.  In  that  year  the  share  of  the  state  was  49.98  per 
cent.;  of  the  departments,  24.18  per  cent,  and  of  the  com- 
munes, 25.84  per  cent.  In  191 8  the  share  of  the  state  was 
27.18  per  cent.;  of  the  departments  32.75  per  cent,  and  of 
the  communes  40.07  per  cent. 

The  communes  also  receive  a  percentage  of  the  assimi- 
lated taxes  on  mines  and  on  vehicles,  horses  and  mules. 

Following  the  war,  by  the  law  of  June  25,  1920,  in  order  to 
enable  the  communes  to  balance  their  budgets,  which  had 
grown  much  above  pre-war  levels,  provision  was  made  for  the 
collection  for  their  benefit  of  an  additional  one-tenth  of  one 
per  cent,  from  the  new  sales — or  "turn-over" — tax.  In  con- 
sideration of  this  assistance  the  communes  were  deprived  of 
their  share  in  the  national  tax  replacing  the  octroi  on  alcohol 
and  light  beverages. 

The  following  table  gives  the  receipts  and  the  expenses  of 

the  departments  and  of  the  communes  for  1869,  1873  ^^^ 

decennially  thereafter  to  1913,  also  the  indebtedness  from 

1885  to  1921. 

LOCAL  FINANCIAL  DATA 

1868-1921 

(In  francs — 000,000  omitted) 


Year 

Receipts 

Expenses 

Debts 

Depart- 
ments 

Com- 
munes 

Depart- 
ments 

Com- 
munes 

Depart- 
ments 

Com- 
munes 

Total 

1868 

1873 
1883 

1893 
1903 

1913 
192 1 

0200 
271 
313 
317 
351 
613 
c 

505 
c 

477 
710 

815 
1,071 
c 

ai8o 
221 
265 
265 
352 
614 
c 

401 

c 

c 

675 

785 

1,040 

c 

c 

c 
6465 

544 

569 
1,142 
2,026 

c 

c 
63,020 
3,320 
3,834 
4,854 
9,518 

c 

c 
3,485 
3,864 
4,403 
5,996 
11,544 

a  For  1869. 
6  For  1885. 
c  Figures  not  available. 


Chapter  XVIII 

The  Finances  of  Paris  and  of  the 
Department  of  the  Seine 

THE  Department  of  the  Seine  is  at  the  same  time  the 
smallest  and  the  greatest  of  the  eighty-nine  departments 
into  which  France  is  divided.  It  is  the  smallest  in  area,  but 
the  largest  in  population  and  the  department  of  greatest 
importance,  because  it  is  the  seat  of  the  national  government. 

In  like  manner,  the  great  city  of  Paris,  although  one  of 
some  36,000  communes,  is  the  greatest  of  them  all,  not  only 
because  it  is  the  capital  city,  but  also  because  it  leads  in 
population,  in  wealth,  in  art,  in  banking,  and  also  holds  an 
important  place  in  the  industries  and  in  commerce. 

The  department  has  a  population  of  about  four  and  a 
half  million,  of  whom  about  two-thirds  live  in  Paris  and  the 
remainder  in  the  22  suburban  towns  outside  Paris,  but  within 
the  limits  of  the  department. 

How  Governed 

The  form  of  government  of  the  department  and  of  Paris 
differs  from  local  government  elsewhere  in  France  in  that 
Paris  has  no  elected  mayor  but  is  presided  over  by  the 
prefect  of  the  Seine  who  is  appointed  by  the  President  of 
France.  The  powers  of  the  prefect  are  very  great.  He 
resides  in  the  city  hall  of  Paris.  There  is  an  associate  prefect 
of  police  who  is  supreme  in  that  department.  The  prefect  of 
the  Seine  is  assisted  in  matters  of  poor  relief,  in  the  manage- 
ment of  the  national  pawn-shop  and  in  the  collection  of  the 
octroi,  or  local  taxes  on  food,  by  special  commissions. 
212! 


FRENCH  PUBLIC  FINANCE  [  213 

There  is  a  municipal  council  for  Paris  of  eighty  elected 
members,  four  for  each  of  the  twenty  districts  into  which 
Paris  is  divided  for  administrative  purposes.  The  principal 
duty  of  the  council  is  to  formulate  and  adopt  the  municipal 
budget.  Its  acts  are  subject  to  the  approval  of  the  prefect 
and  in  some  cases  of  the  national  government. 

The  council  of  the  Department  of  the  Seine  performs 
similar  duties  for  the  department  as  a  whole.  It  is  composed 
of  the  eighty  Parisian  representatives  with  twenty-two 
additional  members  elected  by  the  suburban  towns  of  the 
department. 

Transportation 

Paris  is  the  center  of  the  transportation  systems  of 
France.  There  are  some  24,000  miles  of  railroad  radiating 
from  Paris  in  all  directions,  also  water-ways,  natural  and 
artificial. 

Paris  and  the  Department  of  the  Seine  have  a  very 
complete  system  of  local  transportation  comprising  245  miles 
of  railways,  195  miles  of  motor-bus  lines  and  50  miles  of 
underground  railways. 

All  the  surface  lines  of  transportation,  such  as  the  railways 
and  motor-buses,  also  a  line  of  steamboats  which  maintains 
a  passenger  service  on  the  river  Seine,  are  owned  by  the 
department. 

The  river  Seine,  from  which  the  department  takes  its 
name,  is  a  navigable  water-way  between  the  English  channel, 
at  Le  Havre  and  the  city  of  Paris. 

The  Budget  and  Debt 

The  budget  of  the  city  of  Paris  is  as  large  as  that  of  many 
important  states.     We  are  able  to  present  a  comparative 


214] 


BANKERS  TRUST  COMPANY 


Statement  covering  the  entire  period  from  the  time  of  the 
revolution. 

FINANCES  OF  PARIS 
Budget  and  Debt  in  Millions  of  Francs 


Year 

Population 

(000 
Omitted) 

Budget 

Debt  at  End  of  Year 

Actual 

Per  Capita 

Actual 

Per  Capita 

1799 
1817 
1848 
i860 

1878 
1884 

1893 
1903 
1914 
1920 
1921 

531 
713 
946 
1,800 
1,988 
2,269 
2,448 

2,714 
2,888 
2,863 
2,863 

8 

69 

59 

103 

254 
262 
291 
319 
482 
1,024 
1,534 

Fr.c. 
15.06 
96.77 
62.36 
57-22 
127.77 

115-47 
118.88 

117-15 
166.89 
357-66 
535-80 

a 
a 
a 
a 
a 
a 

1,905 
2,266 

2,948 

5,325 

66,325 

Fr.  c. 

'778.18 

834-92 

1,020.77 

1,859-93 
2,209.^2 

a  Data  not  available. 

b  The  estimated  debt  charge  for  1921  was  258  million  francs. 


Similar  data  for  the  Department  of  the  Seine  are  not 
available,  but  it  will  be  of  interest  to  note  the  budget  figures 
as  proposed  for  1922.    These  are  as  follows: 

DEPARTMENT  OF  THE  SEINE 
Budget  for  1922 
(In  francs — 00,000  omitted) 
Receipts 

Taxes    . 243,0 

Government  subsidies 1 15,6 

Revenue  from  property  owned 6,9 

Miscellaneous      11,2 

Resources  to  be  created 62,5 

439,2 


FRENCH  PUBLIC  FINANCE  [  215 

Expenses 

Administration 14,2 

Debt  Charge 78,8 

Children 36,2 

Aged,  indigent  and  infirm I77i0 

Roads 8,9 

Buildings  and  other  properties     .......  2,1 

Instruction 8,7 

Communal  subsidies 106,7 

Miscellaneous      6,6 

439,2 

The  debt  of  the  department  on  December  31,  1921, 
amounted  approximately  to  984  million  francs.  Loans  con- 
tracted but  not  then  actually  made  will  bring  the  debt  up 
to  1,434  million  and  the  debt  charge  to  144  million.  Thus 
the  combined  debt,  actual  or  soon  to  be  issued,  of  the  Depart- 
ment of  the  Seine  and  of  the  city  of  Paris  at  the  close  of 
1921  was  around  8,000  million  francs  and  the  debt  charge 
about  400  million. 

Sundry  Sources  of  Revenue 

In  concluding  this  brief  review  of  the  finances  of  the 
Department  of  the  Seine  and  of  the  city  of  Paris,  it  may  be 
of  interest  to  note  that  Paris  derives  a  considerable  income 
from  public  utilities  such  as  water,  electricity,  gas,  sewers, 
canals.  She  also  has  many  miscellaneous  sources  of  income 
such  as  receipts  from  halls  and  markets,  from  abbatoirs, 
from  cemeteries  and  funerals,  from  public  properties  and 
other  municipal  privileges.  In  some  cases,  however,  there 
are  net  losses,  for  the  expenses  often  greatly  exceed  the 
receipts. 

Relief  for  the  poor  of  Paris  is  provided  for  from  the 
receipts  of  a  special  tax  upon  amusements.    This  tax,  which 


2l6]  BANKERS  TRUST  COMPANY 

dates  from  1699,  now  brings  in  upwards  of  20  million  francs 
a  year.  It  covers  all  kinds  of  amusements,  such  as  cinemato- 
graphs, balls,  carrousels,  dioramas,  theatres,  cafe  concerts, 
symphony  and  other  concerts,  cabarets,  music  halls,  skating 
rinks,  museums,  and  so  on. 

The  Octroi 

The  octroi  is  a  tax  of  very  old  standing  in  France.  It  is 
a  municipal  tax  on  food  products  which  dates,  in  its  present 
form,  from  the  year  vii  of  the  Revolution  (1798- 1799). 
Not  all  foods  are  subject  to  the  Paris  octroi.  Subject  to  the 
octroi  are  meats  (except  horseflesh),  delicatessen  products, 
game  birds  and  poultry,  preserved  fish,  butter,  margarine, 
eggs,  dry  cheese,  edible  oils,  vinegar.  Wine  and  the  so- 
called  "hygienic  beverages,"  or  light  drinks,  are  now  exempt 
from  this  municipal  tax,  in  lieu  of  which,  as  explained  in  the 
previous  chapter,  the  government  when  collecting  the  turn- 
over (sales)  tax  collects  an  additional  one-tenth  of  one  per 
cent,  for  the  benefit  of  the  communes. 

Some  opposition  is  raised  from  time  to  time  not  only  to 
the  increase  of  the  octroi,  but  to  its  continuance.  The 
friends  of  the  tax  claim  that  it  is  a  sure  source  of  revenue, 
and  is  not  burdensome  to  the  taxpayers.  Bonuses  are 
allowed  to  the  very  poor  or  to  large  families,  to  compensate 
them  for  their  greater  contribution  to  this  tax,  as  compared 
with  the  small  and  well-to-do  families. 

The  opponents  of  the  tax  argue  that  the  expenses  in 
connection  with  its  collection  are  such  that  it  is  a  very 
questionable  source  of  revenue  and  does  not  compensate  for 
the  hindrance  it  occasions  to  internal  trade.  While  these 
facts  are  substantially  accurate  for  France  taken  as  a  whole, 
on  account  of  the  many  small  provincial  towns,  the  eventual 


FRENCH  PUBLIC  FINANCE 


[217 


disappearance  of  this  tax,  if  the  parliament  should  so  decree, 
would  constitute  a  serious  loss  to  the  city  of  Paris,  as  can 
be  seen  from  the  following  figures  which  show  the  net  rev- 
enue from  this  source  for  each  of  the  past  ten  years: 


Francs 

Francs 

1912    .    .    .     113,774,000 

I917    .    . 

74,880,000 

1913    .    .    .     114,858,000 

I918    .    . 

55,206,000 

1914    .    .    .       86,081,000 

I919    .     . 

83,207,000 

19 1 5    .    .    .      63,747,000 

1920    .     . 

•  ti  15,559,000 

1916    .    .    .      66,763,000 

I92I    .    . 

.  ti47,038,ooo 

t  Preliminary  figures. 

Government  Assistance  in  Housebuilding 

The  city  of  Paris  encourages  the  building  of  homes  by 
making  loans  at  moderate  rates  of  interest  to  private  building 
companies.  The  city  also  constructs  houses  on  its  own 
account  which  it  leases  to  desirable  tenants. 

Value  of  Municipal  Properties 

The  value  of  lands  and  buildings  in  the  Department  of 
the  Seine  in  1910  was  20,718  million  francs  with  an  estimated 
rental  value  of  about  1,500  million.  Present  values  must  be 
much  higher. 


Chapter  XIX 
The  Administration  of  the  Finances 

IN  view  of  the  close  relationship  existing  in  France  between 
national,  local  and  private  finance,  the  reader  will  find 
this  chapter  to  be  one  to  which  he  should  give  close  attention. 
It  not  only  has  an  important  bearing  upon  the  chapters  on 
national  and  local  finance  which  immediately  precede  it,  but 
it  serves  to  link  up  these  subjects  with  the  chapters  on  bank- 
ing which  immediately  follow. 

Necessarily  our  treatment  of  this  interesting  subject  must 
be  brief.  We  will  follow  closely  the  very  clear  analysis  given 
by  M.  Stourm  in  "The  Budget" 

The  Central  Administration 

Stourm  tells  us  that  the  central  administration  of  the 
finances  in  France  is  divided  into  two  distinct  branches: 
(i)  Advisory  and  staff  services  immediately  under  the  minister 
of  finance;  (2)  bureaus  of  finance  administration. 

Advisory  and  Staff  Services:  These  fall  into  ten  categories, 
viz.:  cabinet  of  the  minister  of  finance;  "division  of  per- 
sonnel and  materials";  "division  of  control  of  bureaus  of 
finance  administration";  "division  of  general  supervision  of 
finance";  "division  of  transfer"  (supervising  the  movement 
of  the  cash);  "division  of  public  accounting";  "division  of 
the  funded  debt";  "division  of  the  legal  bureau  of  the  treasury 
and  of  disputed  claims";  "division  of  the  central  cash  office 
of  the  public  treasury"  and  "division  of  central  control  of 
the  public  treasury." 

While  each  one  of  these  divisions  has  important  duties 
to  perform  the  "division  of  public  accounting,"  the  "division 
218] 


FRENCH  PUBLIC  FINANCE  [  219 

of  transfer"  and  the  "division  of  supervision  and  control" 
have  particularly  important  functions. 

^^ Division  of  Public  Accounting":  This  division  prepares 
financial  bills,  budgets,  statements,  memoranda  on  supple- 
mentary appropriations  and  especially  is  charged  with  the 
preparation  of  the  estimates  for  the  budget  law.  It  is 
charged  with  the  accounting  of  the  ministry  of  finance  and 
with  the  publication  of  financial  statements.  One  of  its 
very  important  duties  is  to  supervise  the  collection  of  the 
direct  taxes. 

'' Division  of  Transfer"  (Movement  des  fonds) :  This  divi- 
sion is  charged  with  the  paying  out  of  the  revenues  through 
the  proper  channels;  with  creating  new  sources  of  revenue 
in  case  of  insufficient  current  revenues  and  with  the  super- 
vision and  control  over  institutions  in  which  public  credit 
is  concerned,  such  as  the  relations  of  the  treasury  with  the 
Bank  of  France,  with  the  Credit  Foncier  of  France  and 
with  the  Caisse  des  Depots  et  Consignations.  It  supervises 
the  banks  and  exchanges,  the  bourse,  the  railroad  com- 
panies, the  savings  banks,  rural  credits  and  mutual  com- 
panies. "The  very  moment,"  says  M.  Stourm,  "when  one 
of  these  subjects  is  raised,  or  an  incident  occurs  which  is 
liable  to  agitate  the  government,  or  when  a  bill  is  presented 
in  parliament,  or  there  is  a  crisis,  or  in  case  of  international 
difficulties  or  in  case  complaints  of  the  public  arise,  the 
'division  of  transfer'  must,  when  consulted,  be  able  to 
give  its  advice  and  prepare  a  solution." 

"Division  of  Control":  This  division  is  charged  in  a 
general  way  with  communications  addressed  to  other  min- 
isters, or  to  members  of  parliament  and  of  all  matters  which 
involve  an  expenditure  or  modify  the  present  or  future 
elements  of  the  budget.     It  also  performs  a  very  delicate 


220  ]  BANKERS  TRUST  COMPANY 

function  of  examining,  discussing  and  at  times  disapproving 
the  suggestions  made  by  excise  officers. 

Bureaus  of  Finance  Administration 

These  form  the  second  branch  of  the  central  administra- 
tion. They  are  five  in  number  and  have  to  do  respectively 
with  direct  taxes,  registration  taxes,  stamp  duties,  with  the 
domains,  the  customs,  the  excise  taxes  and  state-owned 
industries. 

Each  one  of  these  administrations  is  run  by  a  director 
general,  who  is  assisted  by  a  managing  board  which  is  com- 
posed of  the  director  general,  the  president  and  the  managers. 
The  managers  are  the  chiefs  of  the  various  divisions  into 
which  the  services  are  divided. 

The  institution  of  "managing  boards"  tends  to  limit  the 
power  of  the  director  general  "as  it  is  thought  that  one  man 
with  no  other  guarantee  than  his  personal  responsibility 
should  not  decide  on  matters  of  considerable  interest  and 
on  the  destinies  of  thousands  of  employees  of  the  bureaus  and 
offices  of  the  finance  administration." 

While  the  minister  of  finance  delegates  much  authority 
to  the  different  administrative  departments  he,  of  course, 
reserves  the  right  of  final  determination. 

The  Collection  and  Disbursement  of  the  Revenues 

Unity  is  the  principle  of  the  public  treasury.  This 
principle  has  been  in  operation  since  the  establishment  of  the 
treasury  in  accordance  with  the  edict  of  March,  1788,  ren- 
dered on  the  proposal  of  the  famous  minister,  Necker.  There 
is  one  central  cash  office  located  at  the  ministry  of  finance 
in  Paris.  In  this  office  are  centralized  all  revenue  and  other 
receipts  of  the  treasury  and  from  this  office  are  made  all 


FRENCH  PUBLIC  FINANCE  [  221 

disbursements.  However,  this  does  not  mean  that  .all  of  the 
moneys  actually  pass  through  the  office,  but  that  they  are 
cleared  through  it  by  the  **division  of  transfer."  The  central 
financial  administration  is  greatly  aided  by  inspectors  of 
finance  who  are  sent  to  different  points  in  order  to  inspect 
upon  the  spot  all  financial  services  having  a  public  character, 
whether  or  not  these  services  directly  concern  the  government. 

The  Treasurers-General 

In  addition  to  the  central  service  of  the  movement  of 
funds  and  inspection  (the  division  of  transfer),  the  principal 
auxiliaries  of  the  minister  of  finance  are  the  treasurers-general 
who  are  the  receivers  of  taxes  and  the  dispensers  of  the  funds 
of  the  government.  There  is  a  treasurer-general  in  each 
department  (province).  In  each  arrondissement  (district), 
except  in  the  capitals  of  the  departments  where  the  treasurers- 
general  have  their  offices,  there  is  a  receiver  of  the  finances 
who  reports  to  the  treasurer-general  of  the  department  in 
which  his  district  is  located. 

Practically  all  of  the  receipts  of  the  government  pass  to 
the  Bank  of  France  through  the  offices  of  the  treasurers- 
general. 

The  treasurers-general  are  not  only  receivers  of  taxes, 
but  they  are  also  the  dispensers  of  the  funds  of  the  govern- 
ment— of  course  as  directed  by  the  "division  of  transfer." 

The  bond  uniting  the  treasurers-general  and  the  central 
treasury  at  Paris  is  the  "current  account."  In  their  account 
they  are  debited  with  the  receipts  and  credited  with  the  dis- 
bursements made  by  them  for  account  of  the  treasury. 

The  treasurers-general  are  allowed  to  keep  in  hand  a 
certain  amount  in  cash  to  meet  day  to  day  disbursements. 
The  proceeds  of  collections  not  required  for  this  purpose  are 


222  ]  BANKERS  TRUST  COMPANY 

deposited  with  a  branch  of  the  Bank  of  France,  from  which 
withdrawals  may  be  made  upon  authorization  from  Paris. 

Besides  the  district  collectors  the  treasurers-general  are 
assisted  in  their  work  by  an  army  of  collectors  of  different 
sorts.  Most  agents  and  collectors  turn  in  their  funds  to  the 
district  office  every  eight  or  ten  days,  at  least.  The  receivers 
of  rural  districts  are  allowed  a  month  for  this  purpose. 

The  treasurers-general  are  bonded  officers,  responsible 
not  only  for  their  own  errors  or  malpractices  but  also  for 
those  of  the  employees  under  their  control.  They  are  in 
daily  touch  with  the  treasury  in  Paris.  Formal  settlements 
accompanied  by  vouchers  are  made  monthly,  while  each 
year  during  their  term  of  service  they  submit  to  the  court 
of  accounts  a  statement  of  their  administration. 

The  incidental  and  banking  functions  of  the  treasurers- 
general  are  described  in  a  subsequent  paragraph. 

Authorization  for  Expenditures 

The  public  expenditures  are  made  by  the  disbursing 
officers  of  the  treasury,  the  treasurers-general  or  their  agents, 
and,  in  addition  thereto,  at  Paris,  the  central  disbursing 
cashier. 

Every  month  the  minister  of  finance,  through  the  "director 
of  the  movement  of  funds"  (division  of  transfer)  apportions 
the  available  cash  among  the  different  ministers  of  the  execu- 
tive departments;  after  this  apportionment  these  ministers 
are  charged  with  the  ordering  of  the  relative  expenses  of 
their  departments.  The  director  of  the  movement  of  funds 
receives  all  the  ordonnances  of  payment  issued  by  the  differ- 
ent ministers,  indicates  the  subjects  of  the  appropriation  to 
which  they  belong,  and  directs  payment  thereof  in  the  place 
where  the  funds  are  required. 


FRENCH  PUBLIC  FINANCE  [  223 

Ordonnancement  is  the  act  by  which  the  authorized 
official  declares  payable  a  mandate  (cheque  or  draft)  or  signs 
a  mandate  of  payment.  It  is  a  rule  in  the  matter  of  finances 
in  France  that  the  ordonnateur  (the  one  who  orders  the 
payment  in  writing)  may  never  be  at  the  same  time  the 
ordonnateur  and  the  payer.  The  principal  ordonnateurs  are 
the  ministers,  prefects,  mayors,  military  commanders, 
governors  of  colonies,  etc.  The  ordonnances  are  called 
ordonnances  of  payment  if  they  are  remitted  directly  to  the 
creditors  themselves,  and  ordonnances  of  delegation  if  they 
are  remitted  to  secondary  ordonnateurs  charged  with  the 
distribution  among  the  creditors  of  the  government  of  the 
sums  which  are  due  them.  The  minister  of  finance  is  himself 
the  ordonnateur  of  the  expenditures  of  his  ministry. 

The  ordonnateur  has  not  the  power  to  exceed  the  amounts 
available  nor  to  make  clearances  between  the  amounts  of 
different  subjects  of  his  appropriations  in  order  to  make  up 
the  deficit  in  one  by  the  over  appropriation  in  another  case. 
He  can  make  such  clearances  only  between  articles  under 
the  same  heading. 

The  excess  of  appropriations  which  have  not  been  used 
are  annulled  at  the  end  of  the  year  for  which  made. 

Administrative  Control  and  Examination  {Audits) 

There  is  a  periodical  administrative  control  which  works 
in  two  ways;  first,  every  year  the  accounts  of  the  ministers 
for  the  fiscal  year  just  ended  are  submitted  to  a  special 
commission  composed  of  members  chosen  from  the  senate, 
the  chamber  of  deputies,  the  council  of  state,  and  the  court 
of  accounts.  This  control  bears  on  the  ordonnateurs.  The 
other  periodical  administrative  control  is  that  of  the  officials 
of  the  inspection  of  finances.    This  one  bears  on  the  accoun- 


224  ]  BANKERS  TRUST  COMPANY 


tants;  that  is  to  say,  on  the  treasurers-general,  the  special 
receivers,  the  collectors,  and  the  receivers  of  the  financial 
revenues.  Thus  far  there  is  a  double  control;  the  one  legis- 
lative, bearing  upon  the  ordonnateurs  and  their  operations, 
without  which  the  legislature  would  have  no  means  of  verify- 
ing these  operations;  the  other  administrative,  bearing  at 
the  same  time  on  the  ordonnateurs  and  the  accountants 
keeping  up  inspections.  As  an  additional  safeguard,  there  is 
a  third  control;  this  is  judicial  or  that  of  the  "court  of 
accounts"  to  which  are  referred  all  the  principal  accounts  for 
final  revision. 

The  court  of  accounts  was  founded  by  Napoleon  in  1807. 
It  is  a  veritable  court  of  justice,  which  has  for  its  object  to 
verify  the  actions  of  the  accountants,  to  discharge  them 
from  their  responsibility  in  case  their  management  is  regular 
and  correct,  or  to  place  to  their  charge  any  balances  they 
may  be  owing  through  fraud,  imprudence,  or  infraction  of 
rules;  in  such  cases  the  court  of  accounts  pronounces  judg- 
ment. It  is  a  tribunal  which  judges  at  the  same  time  in  the 
first  and  last  instance  for  the  superior  accountants;  for 
example,  the  receivers-general,  the  receivers  of  registration, 
etc.;  it  judges  on  appeal  the  receivers  of  communes  and  other 
accountants  first  tried  by  the  councils  of  the  prefecture. 

One  may  appeal  for  a  reversal  of  its  judgment  to  the 
council  of  state  for  violation  of  the  law  or  the  nonobservance 
of  forms.  Thus  the  court  of  accounts  revises  in  detail,  by  the 
vouchers,  the  administration  of  the  accountants;  it  verifies 
the  fact  that  there  has  been  no  speculation;  that  is  the  prin- 
cipal and  original  function  of  the  court  of  accounts.  It  has 
no  direct  power  over  the  ordonnateurs;  that  is  to  say,  over 
those  who  order  the  expenditures,  but  have  not  the  manage, 
ment  of  the  funds.    These  are  outside  its  jurisdiction.    The 


FRENCH  PUBLIC  FINANCE  [  225 

reason  why  the  court  of  accounts  has  no  direct  power  over 
those  who  order  the  expenditures  is  that  it  was  thought 
the  court  should  not  encroach  on  the  domain  of  the  ad- 
ministration. If  the  accountants  have  made  the  payments 
on  the  orders  regularly  delivered,  the  court  of  accounts  must 
make  valid  their  payments. 

Banking  and  Incidental  Functions 
of  the  Ministry  of  Finance 

The  French  ministry  of  finance,  in  addition  to  directing 
the  finances  of  the  nation,  performs  important  fiduciary 
duties  for  the  public.  The  agency  through  which  these  duties 
are  carried  out  is  known  as  the  Caisse  des  Depots  et  Consigna- 
tions. We  may,  perhaps,  freely  translate  this  title  as  the 
"trust  department  of  the  national  treasury." 

This  unique  institution  bears  the  same  relation  to  the 
national  treasury  that  the  trust  department  of  a  bank  bears 
to  the  departments  in  which  the  bank's  own  funds  are 
handled. 

It  operates  very  much  as  does  a  bank.  That  is  it  receives 
trust  moneys  which  it  invests  in  government  bonds  or 
deposits  in  the  state  treasury. 

Thus,  while  these  funds  are  carefully  segregated  in  the 
accounting  from  the  funds  of  the  state,  so  as  to  avoid  even 
the  semblance  of  a  possible  confusion  between  state  and 
private  funds,  yet  they  are  available  to  the  state  in  the 
conduct  of  its  affairs. 

Business:  The  mission  of  the  Caisse  is  to  receive, 
hold  and  repay  all  private  funds  entrusted  to  the  state 
either  voluntarily  or  under  compulsion.  It  manages  the 
funds  of  the  ordinary  (or  private)  savings  banks,  of  the 
national  (or  postal)  savings  banks,  and  of  the  mutual  bendit 


226  ]  BANKERS  TRUST  COMPANY 

societies,  the  surety  bonds  deposited  by  contractors  for 
supplies  and  work  undertaken  for  account  of  the  state,  the 
funds  of  departments  and  municipalities,  deposits  of  proper- 
ties sequestered  or  held  under  other  court  orders,  the  deposits 
with  notaries  and  other  trustee  accounts.  The  Caisse  is  also 
entrusted  with  the  management  of  the  national  old-age  pen- 
sion fund  (1850)  and  the  national  life  and  accident  insurance 
fund  (1868),  the  latter  being  qualified,  in  1899,  to  extend  its 
operations  in  order  to  cover  risk  for  accidents  to  employees 
while  at  work. 

All  these  powers  are  derived  from  the  same  principle, 
since  in  all  these  cases  private  funds  are  concerned. 

In  creating  its  provident  institutions  the  state  especially 
aimed  to  encourage  thrift,  therefore  very  small  payments  are 
accepted. 

Organization:  The  Caisse  is  under  the  direct  super- 
vision and  guaranty  of  parliament.  At  the  head  of  the 
department  is  a  director-general  appointed  by  the  govern- 
ment who  can  be  removed  only  on  the  motion  of  the  board  of 
supervisors  of  the  Caisse.  This  board  consists  of  two  senators, 
two  deputies,  the  governor  of  the  Bank  of  France,  two 
members  of  the  council  of  state,  one  of  the  presiding  judges 
of  the  court  of  accounts,  the  president  or  one  member  of 
the  chamber  of  commerce  of  Paris,  and  the  director  of  the 
general  transfer  of  funds  in  the  ministry  of  finance.  The 
board  can  appear  in  both  chambers  of  the  legislature  to  report 
upon  the  material  and  moral  condition  of  the  caisse. 

Profits:  Profits  are  not  sought  from  the  insurance  depart- 
ment, but  if  any  accrue  they  are  added  to  its  reserves.  Profits 
from  the  savings  deposits  are  turned  over  to  the  reserve  and 
guaranty  funds  of  the  savings  banks.  In  the  case  of  the 
mutual  benefit  societies  there  are  no  profits,  because  they 


FRENCH  PUBLIC  FINANCE  [  227 

receive  credit  for  the  same  interest  as  earned.  Other  profits 
belong  to  the  Caisse,  but  since  1837  they  have  been  turned 
into  the  general  treasury  where  they  form  part  of  the  "general 
receipts." 

Agents:  The  Caisse  has  no  branches.  It  operates  where- 
ever  there  are  treasury  agents.  Acting  as  officials  of  the  Caisse, 
they  effect  transactions  in  the  provinces  as  if  they  were 
effected  in  Paris.  The  accounts  are  centralized  in  Paris  and 
periodically  settled. 

Banking  Functions  of  the  Treasurers-General 

In  addition  to  their  duties  as  officials  of  the  ministry  of 
finance  the  treasurers-general  do  a  restricted  banking  busi- 
ness. This  is  a  relic  of  the  time  prior  to  the  revolution  of 
1788  when  these  officials  were  really  bankers  who  "farmed" 
the  revenues.  That  is,  in  lieu  of  a  lump  sum  paid  to  the 
treasury,  the  treasurers  were  authorized  to  collect  the 
revenues  and  to  keep  for  their  own  use  whatever  they  col- 
lected above  the  sum  contracted  to  be  paid  by  them  to  the 
treasury.  Even  after  the  revolution,  and  until  a  compara- 
tively recent  time,  they  had  eighteen  months  in  which  to  pay 
over  their  collections  to  the  treasury.  Thus  it  often  happened, 
both  before  and  after  the  revolution,  that  these  officials  were 
loaning  money  to  the  treasury,  and  receiving  a  good  interest 
therefor,  which  came  from  state  funds  in  their  possession, 
but  which  they  were  not  obligated  to  pay  over  for  months  to 
come. 

Today  they  are  authorized  to  receive  deposits  from 
private  people  on  the  condition  that  they  place  the  funds 
at  the  disposal  of  the  government.  They  also  are  authorized 
to  receive  stock  exchange  orders  for  all  French  stocks,  but 
not  for  foreign  stocks.     They  are  no  longer  allowed  to  dis- 


228  ]  BANKERS  TRUST  COMPANY 

count  paper  or  to  make  advances  upon  collateral.  The 
deposits  are  paid  into  the  Bank  of  France  for  account  of  the 
treasury. 

Other  Functions:  The  treasurers-general  represent  the 
Caisse  des  Depots  et  Consignations.  They  act  as  agents  for 
the  Credit  Foncier,  in  that  they  receive  the  annuities  paid 
by  the  different  municipalities  to  the  Credit  Foncier  and 
deposit  them  in  turn  with  the  Bank  of  France,  to  the  credit 
of  the  Credit  Foncier.  They  act  as  intermediaries  between 
the  savings  banks  and  the  Caisse  des  Depots  et  Consignations 
in  that  they  will  receive  the  funds  of  the  savings  banks  and 
deposit  them  in  the  Bank  of  France  to  the  account  of  the 
Caisse  des  Depots  et  Consignations;  they  also  act  as  inter- 
mediaries for  the  city  of  Paris;  they  pay  the  coupons  on  other 
municipal  bonds.  They  also  receive  subscriptions  for  govern- 
ment bonds  and  cash  coupons  therefrom. 

The  Notaries 

These  are  public  officers,  sworn  agents,  who  have  power  to 
give  authenticity  to  deeds.  They  are  authorized  to  receive 
funds  from  private  people.  They  also  receive  funds  held 
subject  to  litigation.  They  are  required  to  place  all  such 
funds  in  the  Caisse  des  Depots  et  Consignations.  They  do 
not  do  any  banking  business,  but  they  may  be  called  upon 
to  manage  estates,  while  frequently  it  is  through  them  that 
mortgage  loans  are  negotiated  with  the  Credit  Foncier  of 
France. 


Chapter  XX 
History  of  the  Bank  of  France 

THE  Bank  of  France  has  been  described   as  "a  state 
institution  in  the  form  of  a  limited  liability  company." 

Founded  by  Napoleon  I  in  1800 

It  was  founded  by  Napoleon  on  January  18,  1800,  as 
successor  to  the  business  of  an  older  institution,  the  Bank 
of  Current  Accounts,  founded  June  29,  1796  with  a  capital 
of  five  million  francs.  This  bank  had  prospered  and  Napoleon 
decided  that  un'der  a  new  name  it  should  extend  its  field  of 
operations.  The  shareholders  voted  the  dissolution  of  the 
bank  on  the  day  above  mentioned  and  the  Bank  of  France 
was  immediately  organized.  The  new  bank  had  a  capital 
of  30,000,000  francs  in  shares  of  1,000  francs  each,  of  which 
5,000  were  taken  by  the  state.  Napoleon  himself  subscribed 
for  thirty  shares  of  the  stock,  and  his  example  was  followed 
by  many  distinguished  persons  of  his  entourage. 

The  operations  of  the  new  bank  were  similar  to  those  of 
its  predecessor,  with  this  difference,  that  the  Bank  of  France 
had  intimate  relations  with  the  government  for  which  it 
has  always  acted  in  various  ways  as  financial  agent. 

The  early  history  of  the  bank  is  closely  associated  with 
the  name  of  Napoleon.  M.  Mollien,  his  minister  of  the 
treasury  from  1806  and  administrator  of  the  sinking  fund 
prior  thereto,  recounts,  in  his  memoirs,  many  interesting 
facts  about  Napoleon's  active  interest  in  the  affairs  of  the 
bank. 

M.  Mollien  speaks  of  Napoleon's  "insatiable  need  to  be 

[229 


230  J  BANKERS  TRUST  COMPANY 

the  center  of  all  affairs,  the  sole  principle  of  action  and 
impulsion  with  regard  to  all  persons  and  things."  This 
habit  characterized  his  interest  in  the  organization  and 
development  of  the  bank,  an  interest  which  soon  developed 
into  almost  a  complete  domination  of  its  affairs.  Fortunately, 
Napoleon  realized  his  lack  of  knowledge  of  finance  and  was 
willing  to  be  guided  by  the  advice  of  Mollien  and  others  more 
expert  in  such  matters.  Fortunately,  also,  Napoleon's  own 
judgment  was  fundamentally  sound.  During  the  revolu- 
tionary period  he  had  seen  the  danger  of  unlimited  note 
issues  based  on  the  needs  of  the  state  rather  than  upon  the 
requirements  of  commerce.  However,  he  could  not  wholly 
understand  how  it  was  that  one  who  could  make  and  un- 
make empires  could  not  control  the  operation  of  the  laws 
of  finance. 

Shortly  after  the  organization  of  the  bank  Mollien,  who 
did  not  fully  approve  of  the  business  plans  which  had  been 
formulated  for  its  conduct,  addressed  a  memorandum  to 
Napoleon  in  which  he  set  forth  his  views.  We  need  not 
discuss  this  paper  here,  except  to  note  that  the  principles  of 
banking  summarized  therein  would  today  be  endorsed  as 
essentially  sound.  Take,  for  example,  this  one  paragraph, 
"when  there  is  a  superabundance  of  real  money  that  which 
is  superfluous  easily  takes  another  form;  but  when  there  is  a 
superabundance  of  artificial  money,  that  which  is  superfluous 
debases  and  lowers  the  value  of  the  entire  output";  or  this, 
"a  bank  which  discounts  only  regular  bills  of  exchange  and 
keeps  them  to  cash  them  in  when  due,  thus  giving  in  ex- 
change the  equivalent  of  its  currency,  never  runs  the  risk 
of  unduly  increasing  the  sum  total  of  its  currency,  *  *  *  but 
when  its  discounts  are  applied  to  bills  of  exchange  which  are  not 
the  result  of  real  and  necessary  transactions  and,  when  due, 


FRENCH  PUBLIC  FINANCE  [  23  I 

are  to  be  replaced  by  fresh  bills  of  a  similar  nature,  it  is 
then  unduly  increasing  the  bulk  of  the  currency,  and  it 
follows  that  this  excess  circulation  is  inevitably  driven  back 
to  its  source"  *  *  *  or  this,  "in  the  privilege  of  issuing  notes 
to  bearer  a  bank  is  in  possession  of  the  best  credit  in  com- 
merce, but  it  must  be  ready  at  any  time  to  convert  these 
notes  into  real  money/* 

Mollien,  in  this  paper,  criticized  the  government  for  hav- 
ing granted  to  the  bank,  without  charge,  the  valuable  privi- 
lege of  note  issue  when  "this  privilege  could  with  justice  have 
been  sold  or  farmed  out,  like  many  others."  On  the  con- 
trary, he  says,  "the  consular  government,  far  from  taking 
this  advantage,  has  not  even  asked  the  bank  to  make  ad- 
vances to  it."  He  points  out  that  the  government  itself  even 
supplied  one-sixth  of  the  funds  required  to  form  the  capital 
of  the  bank,  while  the  Bank  of  England  was  required  to  loan 
half  of  its  capital  to  the  king. 

In  reply  to  this  memorandum  Napoleon  wrote  to  Mollien, 
"For  the  first  time  I  hear  the  bank  censured  as  to  organiza- 
tion and  in  regard  to  what  the  government  has  done  for  it. 
I  seek  results,  not  doubts,  positive  good,  not  ideal  better. 
The  world  is  old,  let  us  profit  by  its  experience.  *  *  * 
Revise  your  note,  simplify,  clarify  it.  I  do  not  like  to  upset 
what  I  have  done.  One  must  avoid  contradicting  oneself, 
which  tends  to  loss  of  authority.  *  *  *  j  ^^ye  received 
many  notes  on  banks,  all  unsatisfactory,  go  over  them  and 
report  to  me." 

For  some  five  months  Napoleon  left  Mollien  severely 
alone,  some  spiteful  person  having  repeated  to  the  first 
consul  that  Paris  regarded  Mollien  as  his  "tutor  in  finance." 
However,  a  little  later  on.  Napoleon  sent  for  Mollien  and 
asked  him  a  number  of  pertinent  questions  in  regard  to  the 


232  j  BANKERS  TRUST  COMPANY 

affairs  of  the  bank.  He  did  not  like  the  competition  of 
three  banks  all  issuing  paper  money.  He  said,  "Have  you 
not  told  me  that  the  preservation  of  credit  demanded  that 
an  artificial  money  like  that  issued  by  banks  should  come 
out  of  one  source  only?  I  adopt  this  idea.  One  bank  is 
easier  to  watch  than  several;  for  the  government  and  for  the 
public;  whatever  economists  may  say,  competition  is  useless 
here.  Busy  yourself  with  a  new  plan  of  organization  for  the 
Bank  of  France  in  line  with  the  preceding  ideas;  submit  it  to 
me  only." 

The  Charter  Amended  in  180J 

MoUien  drew  up  amendments  to  the  charter  of  the  bank 
which  the  regents  were  ordered  to  deliberate  upon.  Shortly 
Bonaparte  enquired  whether  the  amendments  had  been 
accepted,  saying,  "I  do  not  wish  three  competing  banks  *  *  * 
I  will  call  a  council  of  the  regents  at  once."  Napoleon  was 
much  impressed  by  a  remark  made  by  Talleyrand  at  the 
meeting  of  the  council:  "The  government  must  above  all 
furnish  security  to  the  holder  of  the  notes,  that  is  to  say,  to 
the  public;  it  would  weaken  the  security  if  it  liberated  the 
stockholders  from  rigorous  terms  of  discounting." 

Following  this  meeting,  by  the  law  of  April  14,  1803,  the 
charter  of  the  bank  was  amended  to  give  "the  association 
formed  at  Paris  under  the  name  of  the  Bank  of  France  the 
exclusive  privilege  of  issuing  bank  notes  upon  conditions  set 
forth  in  the  present  law."  These  conditions  were:  that 
stockholders  should  not  have  any  special  right  to  the  dis- 
counting privileges  of  the  bank;  that  the  capital  should  be 
45,000  shares  of  1,000  francs  each;  that  annual  dividends 
should  not  exceed  6  per  cent,  and  that  surplus  profits  should 
form  a  reserve  which  should  be  invested  in  5  per  cent,  rentes, 


FRENCH  PUBLIC  FINANCE  [  233 

the  income  from  which  should  be  divided  among  the  stock- 
holders in  addition  to  the  dividend.  A  discount  committee 
was  created  to  be  composed  of  twelve  merchants  to  be 
selected  by  the  censors  from  among  the  stockholders;  one- 
fourth  to  retire  each  year,  with  the  right  of  re-election. 

The  competitive  banks  were  compelled  to  discontinue 
their  note  issues.  One  of  them  was  merged  with  the  Bank  of 
France  by  an  exchange  of  stock.  The  other  continued  in 
business  simply  as  a  bank  of  discount. 

The  statutes  of  the  bank  were  revised  to  provide  that  note 
issues  should  only  be  made  upon  authorization  of  two-thirds 
of  the  regents  and  with  the  approval  of  the  censors. 

Discounts  were  to  be  limited  to  notes  and  bills  of  ex- 
change signed  by  merchants,  traders,  manufacturers  and 
other  reputable  citizens  of  Paris.  Three  signatures  were  to 
be  required,  or  two  if  secured  by  bank  stock;  but,  on  no 
pretext,  were  bills  of  exchange  to  be  discounted  which  were 
created  collusively  and  without  real  value. 

This  law  also  provided  that  no  departmental  (provincial) 
bank  was  to  do  business  unless  authorized  to  do  so  by  the 
central  government. 

The  Crisis  0/1804-05 

Notwithstanding  the  safeguards  with  which  Napoleon 
had  endeavored  to  surround  the  management  of  the  bank 
and  despite  the  fact  that  there  was  now  only  one  bank  of 
issue  to  watch,  instead  of  three,  both  the  affairs  of  the  bank 
and  those  of  the  national  treasury  drifted  into  a  bad  state 
during  the  year  1805.  The  trouble  began  in  the  latter  part 
of  1804.  In  order  to  balance  the  national  budget  for  the 
fiscal  year  September,  1803,  to  September,  1804,  it  was 
necessary,  in  the  early  part  of  the  year,  to  find  a  way  to 


234  J  BANKERS  TRUST  COMPANY 

anticipate  revenues  which  could  not  be  realized  until  toward 
the  end  of  the  year.  A  pernicious  custom  of  long  standing 
gave  the  treasurers-general  (collectors  of  the  revenues)  i8 
months  in  which  to  account  for  each  year's  collections. 
Thus  they  had  the  use  of  the  money  of  the  state,  free  of 
interest,  for  six  months  beyond  the  time  when  collections 
were  made.  This  was  a  valuable  perquisite  of  the  collectors 
but  it  worked  great  hardship  upon  the  national  treasury. 
Treasury  bills  had  not  come  into  vogue,  in  fact,  notwith- 
standing that  Napoleon  had  labored  hard  and  successfully  in 
the  rehabilitation  of  the  finances,  the  treasury  had  not  yet 
sufficiently  gained  the  confidence  of  the  banking  community 
to  be  able  to  issue  any  paper  whatever  in  its  own  name. 
The  bills  of  the  treasurers-general,  bearing  the  acceptance  of 
responsible  parties,  and  repayable  at  the  office  of  the 
sinking  fund  in  case  of  protest,  had  alone  obtained  confidence. 
Even  these  bills  could  not  be  discounted  with  bankers.  A 
market  for  them  could  be  found  only  with  adventurous  note 
brokers  at  high  rates  of  discount. 

The  minister  of  the  treasury,  M.  de  Marbois,  endeavored 
to  escape  from  the  clutches  of  these  persons  by  arranging 
with  the  treasurers-general  themselves  to  discount  their  notes. 
However,  their  resources  were  limited  and  M.  de  Marbois 
was  glad  to  avail  himself  of  the  offer  of  a  group  of  three 
speculators  of  large  fortune  and  acknowledged  business  stand- 
ing to  keep  the  coffers  of  the  treasury  filled  pending  the 
realization  of  receipts  from  taxation.  Their  offer  was  par- 
ticularly satisfactory  because  it  contemplated  enabling  the 
treasury  to  realize  a  subsidy  due  from  the  Spanish  govern- 
ment, but  which  Spain  had  been  unable  to  pay  because  her 
own  finances  were  in  bad  shape.  New  indirect  taxes  which 
had  been  laid,  in  addition  to  the  regular  tax  receipts  from 


FRENCH  PUBLIC  FINANCE  [  235 

real  property,  were  expected  to  come  into  the  treasury  in 
time  to  enable  the  state  to  meet  its  obligations  when  due, 
even  if  the  Spanish  subsidy  did  not  materialize.  Therefore 
this  seemed  to  be  good  business  for  all  concerned. 

These  speculators  operated  as  a  firm  under  the  name  of 
Associated  Merchants.  Pending  the  realization  of  their  opera- 
tions in  Spain  which  were  intended  to  enable  that  country  to 
pay  its  debt  to  France,  the  Associated  Merchants  obtained 
an  advance  from  the  Bank  of  France. 

All  would  probably  have  worked  out  satisfactorily  but  for 
the  fact  that,  in  December,  1804,  war  was  declared  by 
England  against  Spain.  This  greatly  interfered  with  the 
plans  of  the  Associated  Merchants  by  seriously  complicating 
the  problem  of  the  collection  of  the  Spanish  subsidy.  How- 
ever, they  so  thoroughly  gained  the  confidence  of  M.  de 
Marbois  that  he  practically  turned  over  to  them  the  treasury 
management,  only  to  find  a  few  months  later  that  they  had 
borrowed  from  the  bank  upon  the  security  of  the  tax  collec- 
tions of  the  treasurers-general  and  then  had  taken  these  collec- 
tions directly  from  them,  substituting  their  own  paper.  Thus 
it  was  that  when  the  bank  presented  for  payment  the  notes 
of  the  treasurers-general  it  was  paid  in  notes  of  the  Associated 
Merchants,  or  of  one  of  their  number,  instead  of  with  cash. 

Napoleon  was  then  engaged  in  his  Italian  and  Austrian 
campaign  and  rather  than  cut  ofF  his  resources  and  take  the 
chance  of  a  possible  return  to  the  conditions  of  anarchy 
which  were  still  fresh  in  their  minds,  the  management  of  the 
bank  decided  to  continue  their  advances  to  the  government 
agents — the  Associated  Merchants.  To  do  this  it  became 
necessary  to  restrict  advances  to  the  business  public.  This 
resulted  in  much  hardship  and  a  number  of  failures.  Mean- 
while the  note  issues  became  redundant,  the  note  holders 


236]  BANKERS  TRUST  COMPANY 

became  suspicious  and  the  bank  soon  had  a  run  on  its  hands 
which  was  only  kept  in  check  by  Hmiting  payments  of  notes 
to  600,000  francs  a  day,  a  partial  suspension  of  payment. 
As  the  year  1805  came  to  an  end  conditions  were  very  black 
indeed,  when  all  was  suddenly  changed  for  the  better  by 
Napoleon's  victory  at  Austerlitz. 

The  Bank  Brought  into  Closer  Relations 

with  the  State  in  1806 

In  January,  1806,  Napoleon  returned  to  Paris  in  triumph. 

This  was  on  the  evening  of  the  26th.    The  very  next  morning 

he  called  a  meeting  of  all  those  who  had  been  concerned  in 

these   transactions    and   took   drastic   action   to   place   the 

finances  of  the  nation  and  the  affairs  of  the  bank  upon  a 

sound   basis.     To  the  trembling   and   agitated   group — the 

minister  of  the  treasury   (M.   de  Marbois)   and  the  three 

speculators — Napoleon  said:    "I  see  how  it  is.     It  was  with 

the  funds  of  the  treasury  and  those  of  the  bank  that  the 

company  of  Associated  Merchants  calculated  on  providing 

supplies  for  France  and  Spain.    And,  as  Spain  had  nothing 

to  give  but  promises  of  piastres,  it  is  with  the  money  of 

France  that  the  wants  of  both  countries  have  been  supplied. 

Spain  owed  me  a  subsidy,  and  it  is  I  who  have  furnished  her 

with    one.      Now    Messieurs    Desprez,  Vanderburghe    and 

Ouvrard"  [the  three  speculators,  the  Associated  Merchants] 

"must  give  up  to  me  all  they  possess;  Spain  must  pay  me 

what  she  owes  them,  or  I  will  shut  up  those  gentlemen  in 

Vincennes  and  send  an  army  to  Madrid." 

He  then  dismissed  M.  de  Marbois  and  handed  over  the 
administration  of  the  treasury  to  M.  Mollien  who  held  that 
important  post  for  the  remainder  of  Napoleon's  reign. 


FRENCH  PUBLIC  FINANCE  [  237 

We  note  in  passing  that  M.  Mollien  succeeded  in  collecting 
the  entire  amount  due  from  the  Associated  Merchants  which, 
when  the  accounts  came  to  be  made  up,  proved  to  be  over 
141  million  francs.  Of  course,  the  advances  of  the  bank  were 
repaid.  However,  the  emperor  determined  to  prevent  the 
occurrence  of  such  trouble  and  therefore,  he  gave  to  M. 
Mollien  the  double  task  of  reorganizing  the  administration 
of  the  treasury  and  that  of  the  bank. 

Napoleon  said  that  the  bank  belonged  not  only  to  the 
stockholders  but  also  to  the  state,  since  it  was  from  the  state 
that  it  derived  its  note  issuing  privilege.  Therefore  he  de- 
cided to  put  the  bank  under  the  control  of  the  state,  but 
"not  too  much  so."  The  affairs  of  the  bank  were  placed  in 
charge  of  a  governor  and  two  deputy  governors  appointed 
by  the  head  of  the  state  and  other  provisions  to  insure  state 
supervision  were  adopted.  In  consideration  of  this  arrange- 
ment the  charter  of  the  bank  was  extended  for  twenty-five 
years  beyond  the  fifteen  years  of  its  original  privilege  and 
the  capital  was  raised  to  90,000  shares  of  1,000  francs  each. 
The  bank  was  empowered  to  open  branches  in  the  provinces 
and  its  exclusive  right  of  issuing  notes  was  extended  to 
apply  to  any  town  where  it  had  a  branch.  These  events 
transpired  in  1806. 

The  emperor  himself  did  not  scruple  to  interfere  in  the 
affairs  of  the  bank.  He  kept  up  a  running  correspondence 
with  Mollien  in  regard  to  discounts  and  branches.  He 
personally  forced  a  reduction  in  the  discount  rate,  in  1806, 
to  5  per  cent,  and,  in  1807,  to  4  per  cent. 

The  Bank  and  the  Provinces 

Napoleon  wanted  the  bank  to  open  branches  at  other  points 
than  Lyon  and  Rouen  where  branches  had  been  established. 


238  ]  BANKERS  TRUST  COMPANY 

In  his  progress  through  the  provinces  he  encouraged  the 
business  men  to  expect  that  the  benefit  of  the  bank's  services 
would  be  extended  to  the  provinces.  In  figurative  language 
Napoleon  said  to  the  Bank  of  France,  "with  the  propensity 
which  exists  in  our  country  to  centralize  everything  in  Paris, 
to  centralize  there  payments  as  well  as  the  government  itself, 
the  bank  ought  to  become  there  the  greatest  of  commercial 
agents;  it  ought  to  be  truly  worthy  of  its  name,  and  to 
become  for  Paris  what  the  Thames,  which  conveys  every- 
thing to  London,  is  for  London." 

In  1 8 10  Napoleon  was  urged  by  delegations  from  Lille  and 
from  other  cities  to  require  the  bank,  in  accordance  with  his 
implied  promise,  to  open  branches  therein  and  to  establish 
low  discount  rates.  With  difficulty  Mollien  dissuaded  him 
from  ordering  the  establishment  of  such  branches.  Finally 
Napoleon  said  to  these  people,  "You  shall  have  something 
better  than  branches  of  the  bank,  I  will  decree  a  special  bank 
to  every  town  presenting  me  with  a  list  of  good  stockholders 
and  proving  to  me  that  its  merchants  desiring  discounts  have 
each  year  several  millions  of  good  bills  of  exchange  nego- 
tiable in  said  town."  This  was  not  what  the  envoys  expected, 
but  it  was  all  that  could  reasonably  be  promised.  Naturally 
merchants  exclaimed  against  paying  the  bank's  corre- 
spondents 6  per  cent,  on  bills  that  the  bank  discounted  for 
the  latter  at  4  per  cent.  They  would  have  preferred  branches 
of  the  bank  directly  discounting  for  them  at  4  per  cent. 

Napoleon  was  led  to  take  this  position  by  a  celebrated 
note  addressed  to  him  by  M.  Mollien  in  which  the  latter  set 
forth  very  clearly  the  underlying  principles  of  good  banking 
practice  and  the  danger  of  entrusting  the  delicate  respon- 
sibility of  discounting  to  agents  located  at  points  far  distant 
from  the  central  institution.    It  must  be  borne  in  mind  that 


FRENCH  PUBLIC  FINANCE  [  239 

in  those  days  there  were  no  quick  means  of  communication, 
no  railroads,  not  very  good  wagon  roads,  and,  of  course,  no 
telegraph  or  telephone.  The  provinces  were  destined  for  some 
years  to  be  without  adequate  banking  facilities. 

Napoleon  Invests  in  Stock  of  the  Bank 

When  his  personal  interests  were  concerned  Napoleon, 
like  less  famous  men,  was  not  wholly  consistent.  The 
management  of  the  bank,  finding  it  difficult  to  earn  6  per 
cent,  dividends  upon  the  increased  capital  of  90,000  shares, 
bought  up  a  sixth  of  the  shares,  thus  reducing  the  outstanding 
amount  to  75,000.  Napoleon  was  looking  for  a  safe  invest- 
ment for  personal  funds  called  by  him  "domaine  extra- 
ordinaire." He  proposed  to  buy  the  "bought  in"  shares. 
The  regents  had  forgotten  that  the  capital  constituted  a 
fixed  security  as  regards  the  public,  which  could  not  be  re- 
duced by  their  sole  action,  notwithstanding,  the  reduction 
was  quite  reasonable  and  not  to  be  set  aside  merely  for  the 
personal  convenience  of  the  head  of  the  state.  Napoleon 
drew  up  an  analysis  proving  that  a  bank  had  no  right  to 
diminish  the  number  of  its  shares.  However,  he  limited  the 
portion  he  took  over  to  6,000  shares.  These  were  still  a  part 
of  the  "domaine  extraordinaire"  at  the  restoration,  but  dis- 
appeared between  18 14  and  181 5. 

The  Bank  in  18 1 4 

The  most  serious  set-back  to  the  operation  of  the  bank, 
after  its  reorganization  in  1806,  came  eight  years  later  in 
1 8 14  when,  on  the  invasion  of  French  soil  by  British  troops, 
the  bank  suspended  operations  for  some  weeks.  Fearing 
its  assets  would  be  confiscated,  the  council  ordered  the  burn- 
ing of  notes  on  hand  and  invited  the  depositors  to  withdraw 


240  J  BANKERS  TRUST  COMPANY 

their  balances.  At  this  time  the  reserves  fell  from  nearly 
39  million  at  the  close  of  1813  to  five  million,  the  note  circula- 
tion from  86  million  to  10  million  and  the  deposits  from 
1^)4  million  to  ^,300,000.  However,  the  recovery  was 
rapid  so  that  by  the  close  of  18 14  the  reserves  stood  at  82 
million,  the  note  circulation  just  under  60  million  and  the 
deposits  at  nearly  13^2  million.  Thus  the  bank  passed 
safely  through  the  crisis  of  the  change  of  government,  just 
as  it  has  done  in  every  subsequent  political  crisis  through 
which  the  nation  has  gone.  After  each  such  crisis  the  bank 
has  emerged  stronger  than  before  and  more  thoroughly  in- 
trenched in  the  confidence,  not  only  of  the  people  of  France, 
but  of  the  banking  interests  of  the  world. 

TAe  Bank  Under  the  Restoration 

In  1 81 5,  after  the  final  downfall  of  Napoleon,  an  indemnity 
was  imposed  upon  France  of  700  million  francs  and  foreign 
troops  were  billeted  upon  her  soil  until  it  should  be  paid. 
The  cost  of  this  army  of  occupation,  which  was  also  collected 
from  France,  brought  the  entire  burden  up  to  1,100  milHon 
francs.  By  the  skillful  negotiations  of  the  Due  de  Richelieu, 
the  allied  troops  were  withdrawn  in  181 8,  although  265,- 
000,000  francs  were  still  due.  For  this  balance,  100,000,000 
in  rentes  were  accepted  by  the  allies  and  for  the  remainder 
they  took  short  time  engagements  guaranteed  by  the  Messrs. 
Baring  of  London  and  Hope  of  Amsterdam. 

The  demand  for  capital  to  meet  the  foregoing  payments 
in  France,  and  for  reaching  adjustments  required  once  more 
to  put  commercial  and  financial  affairs  upon  a  wholesome 
basis  elsewhere  in  Europe,  produced  very  unsettled  conditions 
in  the  world  of  business  between  1 8 1 5  and  1 8 1 8.  Discounts  by 
the  bank  which  in  1815  aggregated  only  204  million  francs, 


FRENCH  PUBLIC  FINANCE  [  24I 

rose  in  1816  to  421  million,  in  1817  to  582  million  and  in  1818 
to  727  million.  These  figures  reflected  a  corresponding  in- 
crease in  home  and  foreign  trade.  M.  Levasseur,  in  his 
history  of  French  commerce,  refers  to  this  period  as  one  of 
unbridled  speculation  in  England  and  of  abnormal  inflation 
at  home.  A  bad  harvest  and  the  over-extension  of  specu- 
lators in  commodities  and  securities  brought  matters  to  a 
head  in  the  latter  part  in  1818.  The  management  of  the 
bank,  instead  of  pursuing  the  more  enlightened  policy  of 
discounting  freely  at  high  rates  and  thus  breaking  the  force 
of  the  storm,  pursued  the  opposite  course  of  leaving  the  dis- 
count rate  unchanged,  but  of  severely  restricting  discounts. 
The  result  was  to  accentuate  the  trouble.  Consequently 
there  were  many  failures. 

Under  the  unsettled  conditions  prevailing  in  18 15  and 
1 8 16  the  bank  found  it  difiicult  to  earn  a  satisfactory  dividend 
upon  its  capital  which  again  had  been  increased  to  90,chdo 
shares.  Therefore  it  bought  up  in  the  market  22,100  shares, 
thus  reducing  the  shares  in  the  hands  of  the  public  to  67,900. 
It  is  recorded  that  1,000  shares  were  purchased  from  Napoleon 
in  1815  at  787.50  francs  each.  These  purchases  were  made 
by  the  authority  of  the  stockholders  and  were  approved 
by  the  government.  In  1823  the  reduction  in  capital  was 
formally  legalized. 

As  the  branches  which  had  been  opened  in  Lyon  and 
Rouen  proved  to  be  unprofitable,  authority  was  obtained 
from  the  government  of  Louis  XVIII  to  close  them.  In  their 
place  the  government  procured  the  establishment  of  depart- 
mental (provincial)  banks.  They  were  the  Bank  of  Rouen, 
the  Bank  of  Nantes  and  the  Bank  of  Bordeaux.  These  were 
banks  of  discount,  deposit  and  note  issue,  but  the  privilege  of 
discount  was  limited  to  Paris,  the  home  city  and  contiguous 


242  J  BANKERS  TRUST  COMPANY 

cities,  while  the  notes  might  only  be  circulated  locally.  The 
Bank  of  France  was  jealous  of  these  banks  and  used  its  great 
influence  to  keep  their  operations  within  narrow  limits. 

The  Bank  in  the  Reign  of 
Louis-Phillipe,  1830-1848 

The  revolution  of  1830  had  no  unfavorable  effect  upon 
the  fortunes  of  the  bank.  During  this  reign  there  were  two 
commercial  crises  which  entailed  great  distress  upon  the 
business  community  and  called  for  special  measures  of 
alleviation. 

The  first  of  these  was  due  to  fear  that  the  new  govern- 
ment would  not  be  permanent  and  that  the  nation  might 
expect  a  period  of  political  unrest. 

That  of  1837  was  a  reflection  of  the  crisis  in  America 
brought  on  by  the  opposition  of  President  Jackson  to  the 
Bank  of  the  United  States. 

In  1830,  as  the  bank  under  its  statutes,  could  only  dis- 
count three  name  paper,  parliament  voted  a  credit  of  30 
million  francs  to  be  used  in  discounting  two  name  paper. 
Parliament  also  created  a  special  institution  known  as  the 
Comptoir  d'Escompte  to  handle  these  loans.  This  provisional 
bank  which  functioned  from  October  26,  1830,  to  September 
30,  1832,  acted  as  an  intermediary  between  the  business 
community  and  the  Bank  of  France;  it  furnished  the  third 
name  and  rediscounted  its  paper  with  the  bank.  In  the  23 
months  it  discounted  more  than  37,000  bills,  valued  at  over 
20  million  francs. 

During  this  period,  because  of  the  failure  of  the  Bank  of 
France  to  meet  the  expanding  commercial  needs  of  the 
provinces,  several  more  provincial  banks  were  organized, 
the  majority  of  them  between  1835  and  1840.    The  success  of 


FRENCH  PUBLIC  FINANCE  L  H3 

these  banks  was  so  great  that  the  Bank  of  France  was 
stimulated  to  again  avail  itself  of  its  right  to  establish  branches. 
In  1840,  when  its  privileges  which  were  to  expire  in  1843  were 
renewed  to  December  31,  1867,  it  succeeded  in  securing 
legislation  which  prohibited  the  organization  of  any  new  de- 
partmental bank  and  forbade  the  extension  of  the  privileges 
of  any  such  bank  except  by  special  legislation.  By  the 
ordinance  of  March  25,  1841,  which  fixed  the  status  of  its 
branches,  the  sole  right  of  note  issue  in  cities  in  which  its 
branches  were  located  was  confirmed  to  the  Bank  of  France. 
After  the  crisis  of  1837  France  enjoyed  nearly  ten  years 
of  generally  prosperous  conditions.  Her  home  industries,  in 
which  agriculture  predominated,  flourished.  The  business 
with  the  colonies  became  increasingly  worthwhile  and  foreign 
trade  doubled. 

The  development  of  railroads  was  an  important  feature 
of  this  epoch.  In  1831  there  were  only  24  miles  of  railroad  in 
France,  in  1837  less  than  100  miles,  in  1847  over  1,000  miles. 
If  the  construction  had  been  too  slow  at  first  it  became 
over  rapid  toward  the  end  of  the  period.  This  rapid  develop- 
ment dated  from  1842  when  the  state  intervened  as  an 
associate  of  the  railroad  companies.  With  this  backing  it  was 
not  difficult  to  attract  capital,  of  which  there  was  a  plethora 
during  these  years,  into  the  field  of  railroad  construction.  By 
the  end  of  1846  nearly  2,000  million  francs  of  railroad  securi- 
ties had  been  issued,  and  liquid  capital  became  scarce. 

In  the  latter  year  there  was  a  crop  failure  in  most  European 
countries,  especially  in  France  and  in  England.  It  became 
necessary  to  seek  wheat  in  foreign  countries.  This  caused  a 
heavy  drain  of  specie  from  France.  From  July,  1846,  to  the 
end  of  January,  1 847,  the  reserve  decreased  173  million  francs, 
to  less  than  70  million.  This  compared  with  customary  hold- 


244  J  BANKERS  TRUST  COMPANY 

ings  of  over  270  million.  The  management  of  the  bank  felt 
that  immediate  steps  must  be  taken  to  remedy  this  condi- 
tion. Some  gold  had  been  obtained  in  London  by  the  sale 
of  20  million  of  rentes  through  the  Barings.  This  measure 
proving  to  be  insufficient,  negotiations  were  perfected  with 
the  Russian  imperial  treasury  in  March,  1847,  to  purchase 
50  million  rentes.  This  transaction  gave  the  bank  a  large 
credit  with  which  to  pay  for  grain,  and  thus  materially  helped 
the  situation  at  home. 

In  January,  1847,  both  the  Bank  of  France  and  the  Bank 
of  England  raised  their  discount  rates  to  5  per  cent.  The 
Bank  of  England  in  September  again  raised  its  rate  to  6 
per  cent.  On  the  other  hand,  in  December  the  Bank  of 
Prance  restored  the  4  per  cent,  rate  which,  with  the  exception 
of  this  one  year,  it  had  uniformly  maintained  ever  since 
1822.  The  year  1847  proved  to  be  one  of  quiet  in  French 
business  circles.  The  failure  of  three  railroad  companies 
ended  much  construction  work  for  the  time,  thus  reducing 
the  demand  for  capital.  The  harvests  of  1847  were  more 
satisfactory.  By  the  end  of  the  year  business  was  resuming 
its  normal  course. 

The  Bank  in  the  Revolution  0/1848 

Hardly  had  business  begun  to  breathe  freely  after  the 
trying  days  of  1846  and  1847  when  the  revolution  of  1848 
broke  out.  We  are  told  that  the  private  bankers  lost  their 
heads  completely,  writing  to  their  correspondents  in  the 
provinces  that  they  were  obliged  to  stop  business  and  go  into 
liquidation. 

So  far  as  Paris  was  concerned,  the  entire  burden  was 
thus  thrown  on  the  Bank  of  France  which  met  the  situation 
intelligently  and  courageously.    Notwithstanding  large  with- 


FRENCH  PUBLIC  FINANCE  [  245 

drawals  by  the  treasury  to  meet  its  obligations  and  by  the 
departmental  banks  for  the  necessities  of  their  clients,  the 
bank  discounted  freely  for  all  solvent  borrowers.  After 
losing  60  per  cent,  of  its  specie  reserve  the  bank  asked,  and 
obtained  from  the  government,  permission  to  make  its  notes 
legal  tender  throughout  the  country,  and  to  allow  it  to 
suspend  redemption  in  specie.  The  bank  also  received  per- 
mission to  issue  100  franc  notes;  the  smallest  denomination 
theretofore  allowed  had  been  200  francs.  It  was  not  thought 
advisable  to  issue  small  notes,  but  the  bank  supplied  specie 
for  the  pay-rolls  and  for  the  purchase  of  provisions. 

The  departmental  banks  also  received  permission  to  issue 
legal  tender  currency  and  notes  in  denominations  as  low  as 
50  and  25  francs.  However,  this  measure  was  a  mistake, 
as  the  departmental  banks  could  only  circulate  their  notes 
in  the  town  where  they  were  located.  Therefore  these  notes 
were  of  no  value  in  making  transfers  from  town  to  town  or 
in  transferring  government  funds  to  Paris.  The  Bank  of 
France,  on  the  other  hand,  could  perform  such  services. 
The  result  was  to  paralyze  the  operations  of  the  departmental 
banks.  Hence  the  government  decided  to  withdraw  their 
privileges  and  to  merge  them  with  the  Bank  of  France. 
Thus  finally  was  established  the  monopoly  of  the'  latter 
institution  as  the  sole  bank  of  issue.  Its  stock  was  increased 
by  23,350,000  francs,  the  amount  of  the  combined  capital  of 
the  departmental  banks;  this  raised  its  capital  to  91,250,000 
francs.  The  absorbed  banks  became  additional  branches. 
The  authorized  note  issue  of  the  Bank  of  France  was  likewise 
increased  from  350  million  francs  by  the  sum  of  the  note 
issues  of  the  absorbed  banks,  thus  being  raised  to  525  million. 
Specie  payments  were  resumed  at  the  close  of  1848.  Legal 
tender  rights  were  withdrawn  in  August,  1850. 


246  ]  BANKERS  TRUST  COMPANY 

The  Bank  During  the  Second  Empire 

Napoleon  Third  inaugurated  in  1852  many  important 
measures  of  an  industrial  and  artistic  nature.  Many  addi- 
tional miles  of  railroad  were  constructed,  public  roads  were 
rebuilt  and  important  public  works  of  many  kinds  were  under- 
taken. The  bank  lent  its  support  to  these  enterprises,  especi- 
ally to  the  further  development  of  the  railway  system  of  the 
country,  and  in  1858  it  opened  subscriptions  over  its  own 
counter  for  obligations  of  the  railroads,  the  proceeds  of 
which  were  used  to  pay  the  expenses  of  the  extension  of  their 
lines.  This  assistance  from  the  bank  was  continued  for  several 
years  with  handsome  profits  to  the  bank  and  great  benefit  to 
the  railways  and  indirectly  therefore  to  the  country. 

The  privilege  of  the  bank  was  extended  in  1857  for  30 
years  from  1867,  the  then  date  of  expiration,  and  the  capital 
was  doubled,  increasing  it  to  182,500,000  francs. 

The  Bank  and  the  Franco-Prussian  War 

In  1 870-1 873  at  the  time  of  the  war  with  Prussia  the 
provisional  government  was  given  a  credit  of  2,000  million 
francs.  Of  this  credit  the  treasury  availed  itself  of  1,470 
million  francs.  Reimbursement  was  made  gradually  in 
annual  installments,  payment  not  being  completed  until 
1877.  The  government  of  M.  Thiers  was  also  materially 
assisted  in  financing  the  payment  of  the  5  billion  franc  war 
fine  exacted  by  Germany. 

To  eflPect  these  advances  the  bank  increased  its  note  issues 
366  million  francs  in  1870,  561  million  in  1871,  353  million 
in  1872  and  181  million  in  1873.  This  was  a  total  increase  of 
1,461  million,  about  the  equivalent  of  the  advances  to  the 
nation.  We  may  observe  in  passing  that  the  circulation  of 
the  bank  never  returned  to  the  pre-war  amount — 1,360  million 


FRENCH  PUBLIC  FINANCE  [  247 

at  the  end  of  1869 — but  thereafter  remained  substantially  on 
the  new  level. 

However,  while  the  bank  did  not  after  the  war  materially 
reduce  the  amount  of  its  outstanding  notes  it  did  immediately 
take  steps  to  build  up  its  specie  reserve.  This  amounted  at 
the  end  of  1869  to  1,263  million  francs,  almost  100  per  cent, 
of  the  notes.  At  the  end  of  1870  it  had  fallen  to  505  million, 
under  30  per  cent.  It  then  gradually  began  to  increase, 
reaching  634  million  at  the  close  of  1871,  790  million  at  the 
close  of  1872,  dropped  to  750  million  at  the  close  of  1873, 
jumped  to  1,331  million  at  the  close  of  1874  (about  50  per 
cent,  of  the  notes)  and  then  by  the  end  of  1876  was  2,182 
million  (close  to  90  per  cent,  of  the  notes),  making  them 
again  practically  a  specie  certificate. 

From  August  12,  1870  to  January  i,  1878,  specie  pay- 
ments were  suspended  and  the  notes  of  the  bank  made  a 
legal  tender.  The  able  manner  in  which  the  bank  handled  its 
note  issues  during  this  period  has  been  highly  commended  as 
"so  prudent  and  cautious  that  few,  if  any,  of  the  dangerous 
results  of  the  forced  circulation  of  paper  followed."  During 
the  course  of  this  time  there  was  a  slight,  but  not  important, 
variation  from  the  normal  rate  of  the  foreign  exchanges 
exemplified  in  the  rate  between  Paris  and  London  and  there 
was  a  slight,  if  any,  alteration  in  the  prices  of  commodities. 

The  Bank  under  the  Commune  in  1 8  J I 

In  the  months  of  March,  April  and  May,  1871,  Paris  was 
in  the  hands  of  the  commune.  During  this  period  the  ad- 
ministration of  the  affairs  of  the  bank  was  directed  by  the 
governor,  M.  Rouland,  from  Versailles,  to  which  place  he 
had  .been  summoned  by  the  government.  He  maintained 
order  in  the  branch  banks  and  was  able  to  do  much  to  protect 


248  ]  BANKERS  TRUST  COMPANY 

the  interests  of  the  main  bank  and  to  contribute  to  its  safety. 
The  under-governor,  the  Marquis  de  Ploeuc,  and  the  directors 
remained  in  Paris  and  skilfully  parried  the  demands  of  the 
communists,  who,  after  having  spent  the  funds  which  they 
found  in  the  ministry  of  finance,  some  4  million  francs,  and 
the  produce  of  the  daily  receipts  from  customs,  octroi,  etc., 
turned  their  attention  to  the  bank  and  demanded  large  ad- 
vances. The  directors  succeeded  in  satisfying  the  communists 
by  advances  of  small  sums  from  time  to  time.  They  were 
allowed  to  draw  out  in  installments  the  sum  of  about  9,400,- 
000  francs  which  was  on  deposit  to  the  credit  of  the  city  of 
Paris.  When  this  was  exhausted  the  bank,  with  the  approval 
of  the  ministry  of  finance  at  Versailles,  gave  the  communists 
further  sums,  but  only  under  threat  that  if  the  amount  de- 
manded was  not  delivered  the  bank  would  be  immediately 
invaded  by  the  communal  guard.  The  total  sum  given  to  the 
communists  reached  over  16  million  francs.  Eventually  the 
state  and  the  city  of  Paris  made  themselves  responsible  for  a 
part  of  this  amount,  but  the  remainder  the  bank  had  to 
charge  to  profit  and  loss. 

At  one  terrible  moment  it  seemed  as  if  the  bank  property 
would  be  raided  as  it  was  claimed  that  the  crown  jewels  were 
lodged  there,  and  the  communists  demanded  their  surrender. 
Happily  the  bank  escaped  with  a  fright  only.  We  are  told 
that  even  during  this  period  the  bank  continued  its  advances 
to  the  government,  loaning  it  as  much  as  415  million  francs. 

The  Bank  Liberalizes  Its  Policy— I Sgj  to  igij 
The  privilege  of  the  bank  was  extended  in  November, 

1897,  for  23  years. 

In  1897  and  191 1  the  bank  took  a  series  of  measures,  with 

the  object  of  enabling  as  large  a  number  as  possible  of  manu- 


FRENCH  PUBLIC  FINANCE  [  249 

facturers,  tradesmen  and  farmers,  to  obtain  immediate  access 
to  its  offices.  The  chief  of  these  measures  were :  the  admission 
for  discounting  of  the  bills  of  agricultural  syndicates;  the 
lowering  of  discountable  bills  to  a  minimum  of  5  francs  in 
value;  the  acceptance  of  bills  payable  in  French  colonies  or 
abroad  and  of  agricultural  warrants  and  of  bills  payable  in 
any  one  of  the  towns  where  the  bank  undertakes  to  collect 
bills;  also  allowing  the  same  deposit  of  securities  to  serve  in 
place  of  the  third  name  for  discounts  or  as  collateral  to  loans. 

Besides  these,  other  facilities  were  given  to  clients,  such 
as  allowing,  in  certain  special  cases,  of  an  easy  interpretation 
of  the  clause  in  the  statutes  limiting  discounts  to  bills  due 
in  three  months  and  reducing  the  number  of  signatures  re- 
quired to  two.  In  this  way  the  number  of  discount  accounts 
in  sixteen  years  (i 897-191 3)  rose  from  3,387  to  21,426,  and 
discounted  bills  from  14  million  to  30  million,  representing  a 
total  value  of  10  to  20  billion,  in  which  the  figure  for  bills 
below  100  francs  went  up  from  33  per  cent,  to  50  per  cent. 

Between  1897  and  1913  the  increase  in  every  day  cash 
transactions,  most  of  which  are  free  of  charge,  was  also 
very  great,  the  treasury's  current  account  rose  from  6  to  13 
billion,  the  number  of  banking  accounts  from  27,304  to 
to  147,800,  the  amounts  of  clearing  transactions  from  86  to 
310  billion.  Credits  transferred,  in  connection  with  accounts 
opened  at  two  different  branches,  increased  from  2,833 
millions  (1898)  to  10,345  millions  (1913),  owing  to  the  usual 
charges  for  commission  being  done  away  with.  The  use  of 
crossed  cheques  was  permitted,  even  before  legally  sanctioned, 
and  they  were  cashed  free  of  charge.  The  general  circulation 
in  cash,  through  payments  made  out  of  or  received  into  the 
bank,  rose  from  124  billion  (1897)  to  381  billion  (191 3). 
During  the  same  period  the  number  of  deposited  securities 


250  ]  BANKERS  TRUST  COMPANY 

rose  from  8>^  million  to  15  million;  and  324  new  establish- 
ments (branch  banks,  auxiliary  offices,  and  towns  having 
connection  with  the  bank)  were  founded,  or  organized.  These 
figures  give  some  idea  of  the  immense  amount  of  work  done 
for  the  people  by  the  Bank  of  France  during  the  years  preced- 
ing the  war. 

The  Bank  During  the  Great  War 
and  Since,  igi4-ig2I 

During  the  financial  crisis  which  prevailed  in  all  the 
belligerent  countries  during  the  last  week  of  July,  1914,  the 
•bank  was  able  to  rise  to  the  occasion  and  meet,  unhesitatingly, 
all  the  demands  that  the  country  made  upon  it.  As  the 
withdrawal  of  deposits  from  the  banks  increased,  the  amount 
of  commercial  bills  presented  for  discount  rose  from  1,583 
million  francs  (July  27th)  to  3,430  million  (August  3rd).  In 
spite  of  the  coming  into  force  of  various  moratorium  decrees, 
it  continued  to  discount  commercial  bills,  and  so  enabled  the 
banks  and  private  individuals  gradually  to  meet  their 
liabilities.  It  made  the  treasury,  for  the  first  expenses  of 
the  war,  an  advance  of  2,900  million  francs,  to  which  were 
added  100  million  francs  advanced  by  the  Bank  of  Algeria. 
Owing  to  the  prolongation  of  the  war  and  the  heavy  expendi- 
ture of  all  kinds  resulting  from  it,  and  in  spite  of  the  success  of 
the  direct  issues  of  bills  and  bonds  to  the  public,  the  total 
sum  of  the  advances  made  by  the  bank  to  the  state  increased 
little  by  little,  until  at  the  close  of  the  war  it  exceeded  26 
billion,  not  including  3,500  million  in  treasury  bills  discounted 
by  the  bank  to  provide  for  loans  to  Russia  and  other  allies  of 
France.  This  increase  which  necessitated  a  corresponding 
augmentation  in  the  issuance  of  fiduciary  currency  led  to  the 
making  of  provision  for  special  reserve  funds,  which  will 


FRENCH  PUBLIC  FINANCE  [  25 1 

facilitate  the  redemption  of  the  debt  incurred  by  the  state 
to  the  bank. 

By  active  propaganda,  by  the  increase  of  the  facilities  of 
its  central  and  branch  offices  and  by  opening  many  special 
offices,  also  by  arranging  to  make  liberal  advances  to  sub- 
scribers at  attractive  interest  rates,  the  bank  greatly  aided  in 
the  successful  flotation  of  government  loans  and  sales  of 
treasury  bills.  Valuable  help  also  was.  given  toward  the 
revival  of  the  economic  life  of  the  country.  By  advancing 
250  million,  in  September,  191 5,  the  bank  facilitated  the 
settlement  at  the  bourse,  which  had  been  postponed  since 
July,  19 14.  Moreoever,  all  the  gold  sent  abroad  was  put 
to  the  state's  account,  enabling  it  to  obtain  a  credit  for 
three  times  the  amount  of  such  deposits,  also  the  bank 
gratuitously  accepted  the  management  of  foreign  loan  se- 
curities lent  to  the  state,  and  gave  guarantees  for  opening 
private  commercial  credit  accounts  in  Great  Britain,  the 
United  States  and  in  several  neutral  countries. 

The  amount  of  business  cleared  by  the  bank  for  the 
state  from  19 14  to  1921,  inclusive,  totaled  over  1,963 
billion  francs.  These  figures  include  deposits  and  with- 
drawals on  the  treasury  accounts,  clearings  of  funds  effected 
in  Paris  and  in  the  departments,  remittances  of  bills  for 
collection,  collection  of  orders,  issues  of  treasury  bills  and 
payment  of  coupons  of  treasury  bills  and  payments  by 
transfers  of  orders  for  the  use  of  creditors  of  the  state  and  of 
the  departments  having  accounts  open  at  the  bank.  All  of 
these  transactions  were  made  free  of  charge. 

The  bank  negotiated  large  commercial  credits  in  London 
and  New  York  and  by  sales  and  loans  of  gold  obtained  im- 
portant advances  for  government  account  from  the  Bank  of 
England,  in  the  United  States  and  in  neutral  markets. 


252  J  BANKERS  TRUST  COMPANY 

The  bank  also  took  a  leading  part  in  arranging  the 
$500,000,000  Anglo-French  loan  in  the  United  States,  also  in 
negotiating  here  the  sale  of  the  City  of  Paris  and  French 
Cities  loans.  It  negotiated  large  commercial  credits  in 
London  and  New  York  and  by  sales  and  loans  of  gold  ob- 
tained important  advances  for  government  account  from 
the  Bank  of  England,  in  the  United  States  and  in  neutral 
markets. 

An  independent  private  institution  possessing  its  own 
capital,  governed  by  a  council  of  regents,  under  the  experi- 
enced and  able  leadership  of  a  governor  and  sub-governors 
appointed  by  the  state,  the  Bank  of  France  has  been  managed 
with  liberal  foresight  and  discretion,  thus  assuring  the 
soundness  of  its  credit  and  its  ability  successfully  to  fulfill  its 
function  as  the  center  and  foundation  of  public  and  private 
finance  in  time  of  peace  and  through  the  ordeal  of  war. 
Its  strength  of  endurance  in  days  of  stress,  its  patriotic 
assistance  to  the  national  treasury,  and  the  beneficial  in- 
fluence it  exercises  in  the  different  branches  of  industry,  have 
won  for  it  the  well-deserved  gratitude  of  the  people  of 
France  and  the  admiration  of  financiers  the  world  over. 

As  a  practical  evidence  of  appreciation,  parliament  in 
191 8  renewed  the  privilege  of  the  bank  for  another  quarter 
century,  dating  from  December  31,  1920,  while  in  December, 
1920,  the  state  entered  into  a  solemn  compact  with  the  bank 
to  begin  in  1922  the  reduction  of  its  war  indebtedness  thereto, 
at  a  rate  of  not  less  than  2,000  billion  francs  a  year. 


Chapter  XXI 
Functions  and  Operations  of  the  Bank  of  France 

PERHAPS  the  first  and  most  important  function  of  the 
Bank  of  France  is  that  of  making  and  regulating  the 
fiduciary  currency  of  the  nation  and  the  correlative  function 
of  maintaning  the  specie  reserve.  Next  in  importance,  in 
normal  times,  may  be  placed  its  relation  to  the  other  banking 
institutions  of  the  nation,  its  function  of  being  a  bank  for 
banks.  Then,  in  a  very  true  sense,  the  Bank  of  France  is  a 
bank  for  all  of  the  people,  not  merely  for  large  corporations 
and  for  people  of  wealth  but  for  every  citizen  who  requires 
banking  services.  Lastly,  the  Bank  of  France  has  important 
relations  with  the  national  treasury.  These  in  times  of 
stress  become  paramount  and  dominant. 

Bank  of  France  Notes 

Since  1848  the  Bank  of  France  has  enjoyed  the  exclusive 
privilege  of  issuing  the  fiduciary  currency  of  the  nation. 
The  total  amount  of  notes  which  may  be  circulated  by  it  at 
any  one  time  is  nominally  regulated  by  law.  Actually,  in 
normal  times,  the  circulation  is  regulated  by  the  requirements 
of  commerce.  The  amount  of  notes  in  circulation  rises  and 
falls  with  the  needs  of  business  as  reflected  by  the  discounts 
and  loans  of  the  bank.  Thus  the  seasonal  fluctuations  in 
trade  decide  the  note  issues.  Therefore,  normally,  every 
note  has  its  counterpart,  either  in  the  metallic  reserve  or  in 
bills  and  loans  of  short  duration  which  are  constantly  matur- 
ing. The  growth  in  volume  and  size  of  commercial  trans- 
actions, even  before  the  war  led  to  a  steady  increase  in  the 
amount  of  notes  in  circulation,  as  shown  by  the  following 

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254] 


FRENCH  PUBLIC  FINANCE 


[255 


table  and  chart  covering  the  forty  years  of  peace  lying 
between  1873  and  191 3. 

BANK  OF  FRANCE 

CREDIT  MEDIA  AND  CREDIT  STRUCTURE 

1873-1912 

(In  francs — 000,000  omitted) 


Specie 

Credit 

Credit 

Reserves 

Media. 

Structure 

Five- Year 

Dis- 

Averages 

% 

Circu- 
lation 

All 

Dis- 

% 

count 

Actual 

Credit 

De- 

Total 

counts 

Credit 

Rate 

Media 

posits 

and 
Loans 

Media 

Aver- 
age 

1873-1877 

1,520 

52.52 

2,580 

314 

2,894 

1,513 

52.28 

3-83 

1878-1882 

2,010 

70.68 

2,430 

414 

2,844 

1,244 

43-74 

3-04 

1883-1887 

2,200 

66.18 

2,840 

484 

3,324 

1,696 

51.02 

3.02 

1888-1892 

2,520 

69.49 

2,970 

656 

3,626 

942 

25.98 

2.99 

1893-1897 

3,150 

74-So 

3,550 

661 

4,211 

945 

22.44 

2.22 

I 898- 1902 

3,320 

71.92 

3,970 

646 

4,616 

1,184 

25.6=; 

2.91 

1903-1907 

3,770 

72.81 

4,490 

688 

5,178 

1,319 

25-47 

3-09 

,  1908-1912 

4,160 

70.71 

5,140 

743 

5,8«3 

1,713 

29.12 

3-II 

In  time  of  war  all  this  is  changed.  The  state  which  in 
time  of  peace  is  forbidden  to  borrow  from  the  bank  now 
becomes  the  chief  borrower.  The  note  issues  instead  of  ex- 
panding and  contracting  with  the  needs  of  business  expand 
rapidly  as  the  state  requires  funds.  The  governor  of  the 
currency  engine — the  specie  reserve  and  the  loans  and  dis- 
counts— no  longer  functions.  The  only  check  against  un- 
limited expansion  is  the  exercise  of  the  good  judgment  of  the 
minister  of  finance  in  not  forcing  the  bank  to  issue  notes 
beyond  an  amount  which  will  destroy  their  value  in  exchange 
for  munitions  and  services  required  for  the  conduct  of  the 
war.  The  next  table  and  chart  show  the  facts  year  by  year 
from  1913  to  the  end  of  1921. 


asxxiuo  000  GOO  -  soNvaj  ni 
«         ^         R         S         2 


hi 


3iV^    iNOOOSia 


256 


FRENCH  PUBLIC  FINANCE 


[257 


BANK  OF  FRANCE 

CREDIT  MEDIA  AND  CREDIT  STRUCTURE 

1913-1920 

(In  francs — 000,000  omitted) 


Specie 
Reserves 

Credit 
Media 

Credit 
Structure 

Annual 
Averages 

Amt. 

% 
Credit 
Media 

Circu- 
lation 

Depos- 
its 

Total 

Discounts  and 
Loans 

Advances  to 
State  for  War 

Amt. 

% 
Credit 
Media 

Dis- 
count 
Rate 

Close  of 
Year 
Amt. 

% 
Credit 
Media 

3.972 
4.405 
4.709 
5.280 
5.517 
5.690 
5.852 
5, 812 

61.  j6 
49.48 
31.77 
29.83 
24.33 
18.49 
15.49 
13.93 

5,665 
7.325 
12,280 
15.552 
19.845 
27.536 
34.744 
38,186 

830 
1.556 
2,541 
2,149 
2,645 
3.230 
3,028 
3.463 

6.495 
8,881 
14.821 
17.701 
22.490 
30,766 
37,772 
41,649 

2,374 
2,314 
928 
1,669 
1,783 
2,089 
2.293 
4.04s 

36.53 

26 .03 

6.45 

8.87 

6  77 
6.07 
9.71 

4.00 
4.22 
5.00 
5.00 
5.00 
5.00 
5.00 
5.73 

1914- 
1915. 
1916. 
1917. 
1918. 
1919. 
1920. 

3.900 
a    5.630 
a    9,030 
0x5.715 
a  20,676 

0  29,255 

030,580 

43 -Qi 
37.98 
51.58 
69.93 
67 .20 
77-45 
73-42 

Actual 

Status 
1914 

4.696 
5.804 

63.10 
14.80 

6,051 
36.487 

1.232 

2.743 

7.283 
39,230 

2.538 
4.804 

34.44 
12.35 

3-50 
5.50 

192 1 
Dec. 

29 

24,600 

62.48 

a  Includes  advances  to  the  State  under  Law  of  August  6th  and  December  26, 
1914,  and  Treasury  Bonds  for  account  of  advances  made  to  foreign  governments. 


It  will  be  observed  that  from  1914-1921  advances  to  the 
state  reached  a  maximum  (in  the  latter  part  of  1920)  of 
26,800  million  francs,  since  reacting  to  24,900  million  at  the 
close  of  1921.  These  advances  involved  a  corresponding  in- 
crease in  circulation,  which  then  stood  at  36,417  million, 
about  seven  times  the  average  status  of  5,230  million  for  the 
six  years  prior  to  1914.  If  we  deduct  the  advances  to  the 
state  we  find  that  the  amount  of  the  note  issues  not  offset  by 
such  advances,  say  11,500  million  francs,  is  almost  exactly 
double  the  total  note  issue  just  prior  to  the  declaration  of 
war.  Deposits,  too,  have  slightly  more  than  doubled.  On 
the  other  hand,  we  find  that  commercial  loans  and  discounts 


258  ]  BANKERS  TRUST  COMPANY 

have  also  doubled  and,  in  our  study  of  the  credit  structure 
in  chapter  v,  we  found  that  this  was  apparently  true  of 
the  banking  situation  taken  as  a  whole. 

Although  the  note  circulation  has  increased  six  fold  since 
1914  wholesale  prices  today  are  only  about  three  times  what 
they  were  in  1913.  It  is  true  that  in  the  Spring  of  1920  they 
were  nearly  six  fold  the  19 13  average.  There  have  evidently 
been  other  forces  than  the  increased  volume  of  currency  at 
work  affecting  prices,  otherwise  the  maximum  reached  in 
1920  should  have  been  retained  until  now  instead  of  being 
nearly  cut  in  two.  Just  what  is  the  effective  note  circulation 
it  is  difficult  to  determine  because  of  the  propensity  of  the 
French  people  to  hoard  money.  If  they  cannot  obtain  specie 
they  will  hoard  bank-notes.  The  increased  volume  of  busi- 
ness calls  for  a  substantial  increase  in  the  volume  of  notes, 
especially  in  France  where  even  today,  after  earnest  efforts 
to  popularize  the  use  of  cheques,  transactions  to  such  a  large 
extent  are  settled  with  actual  cash. 

The  Specie  Reserve 

There  is  no  fixed  specie  reserve  which  the  bank  is  legally 
required  to  hold  against  either  notes  or  deposits.  The 
amount  of  the  reserve  is  left  to  the  discretion  of  the  manage- 
ment. As  may  be  seen  by  reference  to  the  foregoing  charts, 
the  policy  of  the  bank  always  has  been  to  maintain  a  large 
reserve.  It  will  be  noted  that  between  1877  and  19 13  the 
reserve  nearly  equals  the  notes  in  circulation.  Thus,  up  to 
the  time  of  the  war.  Bank  of  France  notes  were  practically 
specie  notes.  We  use  the  term  specie,  rather  than  gold 
because  the  French  money  is  theoretically  bi-metallic. 
Therefore  the  bank  reserves  the  right  to  redeem  its  notes 
in  either  gold  or  silver,  and  carries  a  substantial  minimum 


FRENCH  PUBLIC  FINANCE  [  259 

amount  of  its  specie  reserve  in  silver.  However,  the  bank 
uses  this  right  with  discretion  and  only  to  the  extent  which 
appears  necessary  in  order  to  prevent  an  unjustifiable  weak- 
ening of  the  gold  in  its  vaults.  In  no  case  has  the  bank  ever 
charged  any  premium  on  French  gold  in  redemption  of  notes. 
As  we  have  already  pointed  out  in  chapter  v,  all  through 
the  war  the  bank  succeeded  in  maintaining  and  even  increas- 
ing its  specie  reserves,  but  manifestly  it  would  have  been 
impossible  to  maintain  the  convertibility  of  its  notes  in  the 
face  of  steadily  increasing  issues.  Very  wisely  the  specie 
holdings  have  been  used  to  protect  the  entire  banking  struc- 
ture and  especially  international  credits. 

Discounts  and  Loans 

The  Bank  of  France  discounts  for  any  corporation,  firm  or 
individual  having  an  account  opened  on  its  books.  Paper  to 
be  discountable  must  bear  three  signatures,  two  of  which 
ordinarily  must  be  those  of  citizens.  Paper  to  be  discountable 
must  mature  within  three  months.  Bills  may  be  payable  in 
Paris  or  in  any  one  of  the  6oi  towns  where  the  bank  under- 
takes to  collect  bills. 

The  third  signature  may  be  replaced  by  a  deposit  of  se- 
curities accepted  as  collateral  for  loans,  or  by  warehouse 
receipts,  or  may  be  given  once  for  all  by  a  separate  deed  of 
guaranty. 

The  bank  also  makes  loans  upon  collateral.  The  securities 
accepted  are  generally  only  such  as  are  issued  or  guaranteed 
by  the  nation,  the  departments,  the  municipahties  or  French 
colonies,  such  as  the  bonds  and  stocks  of  French  railroads, 
the  bonds  of  the  Credit  Foncier  and  bonds  created  by  French 
cities  or  departments  or  the  Governor  General  of  Indo  China, 
the  Governor  General  of  Algeria  or  Tunis,  and  loans  con- 


26o  ]  BANKERS  TRUST  COMPANY 

tracted  by  the  colonies  and  countries  under  French  protec- 
tion which  are  regularly  authorized  and  also  upon  the  obliga- 
tions issued  by  the  Credit  National  to  facilitate  the  repair 
of  the  damage  caused  by  the  war.  The  amount  of  the  loan 
to  be  made  against  these  different  classes  of  securities  is 
determined  by  the  general  council  of  the  bank. 

The  bank  has  a  system  of  mixed  accounts  for  which  the 
securities  deposited  serve  alternately,  and  according  to  the 
position  of  the  account  either  to  guarantee  advances  made, 
or  discounts  granted  to  the  same  customer. 

A  very  important  part  of  the  bank's  bills  discounted  comes 
from  re-discounts  for  other  banks,  especially  for  the  great 
credit  establishments.  It  is  for  this  reason  that  these  great 
banks  with  their  numerous  branches  and  tremendous  volume 
of  business  are  able  to  transact  business  on  so  small  cash 
reserves.  In  case  of  heavy  drafts  by  their  depositors,  or  un- 
usual demands  for  accommodations  from  business  houses,  the 
banks  can  usually  take  a  bundle  of  bills  to  the  Bank  of 
France  and  get  credit  for  them  on  its  books,  or  obtain  a 
package  of  crisp  new  bank  notes  to  place  in  their  tills.  It  is 
thus  that  the  bank,  by  giving  or  withholding  credit,  can 
regulate  the  credit  situation. 

The  bank  does  not  confine  its  business  to  rediscounts  for 
other  banks  or  to  loans  on  collateral  for  them  or  to  discounts 
or  loans  for  the  great  financial  or  commercial  houses.  Any- 
one who  has  an  account  with  it,  no  matter  how  small,  down 
to  the  minimum  of  five  francs,  may  discount  paper  at  any 
one  of  its  offices. 

The  average  life  of  bills  discounted  is  around  25  days. 
In  192 1  there  were  15,343,800  bills  discounted  in  Paris,  and 
at  the  branches  and  auxiliary  bureaus.  Of  4,646,000  bills 
discounted  in   Paris  alone  there  were  32,604  for  amounts 


FRENCH  PUBLIC  FINANCE  [  261 

between  5  and  10  francs;  577,243  for  amounts  over  10  and 
up  to  50  francs  and  623,506  for  amounts  over  50  and  up  to 
100  francs.  Thus  the  little  discounts  for  amounts  of  100 
francs  or  less  comprised  about  27  per  cent,  of  the  total 
number  of  bills  discounted  in  Paris. 

The  Discount  Kate 

The  rate  of  discount  at  the  Bank  of  France  has  been 
remarkably  uniform  and  usually  lower  than  that  of  other 
central  banks.  As  our  charts  show,  from  1873  the  rate 
steadily  declined,  averaging  in  the  five-year  period  1 893-1 897 
only  2.22  per  cent.  As  a  matter  of  fact  the  average  rate  for 
each  of  the  years  1896  and  1897  was  only  2  per  cent.  After 
1897  the  rate  gradually  advanced,  reaching  4  per  cent,  in 
1913.  The  rate  for  a  short  period  in  1914  was  6  per  cent., 
but  was  soon  reduced  to  5  per  cent,  in  191 5,  where  it  stood 
unchanged  until  April  8,  1920,  when  it  was  advanced  to  6 
per  cent,  to  be  marked  down  again  to  5>^  per  cent,  on  July 
28,  1921,  and  to  5  per  cent,  in  March,  1922.  The  loaning 
rate  on  securities  is  usually  about  j^  to  i  per  cent,  above  the 
discount  rate.  The  uniform  and  relatively  low  rate  of  dis- 
count in  all  parts  of  France  has  been  a  great  boon  to  French 
business. 

Other  Services  Rendered  to  Public 

In  addition  to  being  a  bank  of  issue,  of  deposit  and  of 
discount,  the  bank  renders  other  valuable  services  to  the 
public.  It  transfers  money  {virements)  for  its  clients  with- 
out charge,  from  one  account  to  another,  from  an  account  in 
Paris  to  one  at  a  branch,  or  from  branch  to  branch.  For  per- 
sons not  customers  there  is  a  moderate  charge  made.  Such 
transfers  between  clients  amounted  in  1921  to  1,199  million 


262  ]  BANKERS  TRUST  COMPANY 

francs,  while  the  number  of  such  transfers  was  the  almost 
unbelievable  total  of  35,992  million.  These  transfers  are 
made  by  a  simple  notification  to  branches  or  the  home  office, 
or,  if  the  person  making  the  transfer  so  desires,  he  will  be 
given  a  receipt  in  duplicate,  one  part  to  be  retained  by  him 
(Mandat  de  Virement)  and  the  other  part  {Avis  de  Firement) 
to  be  sent  to  the  person  to  whom  the  money  is  transferred. 
These  virements  of  the  Bank  of  France  are  almost  exclusively 
used  by  other  banks  in  making  transfers  between  their  head 
offices  and  branches,  as  well  as  being  extensively  used  by 
other  clients  of  the  bank. 

Other  methods  of  transferring  money  are  cashier's  cheques 
{billets  a  ordre),  not  very  extensively  used;  and  cheques, 
which  are  of  two  kinds,  direct  and  indirect.  The  direct 
cheque  is  payable  in  the  locality  where  the  account  is  kept, 
the  indirect  cheque  is  payable  elsewhere.  There  is  no  charge 
on  the  direct  cheque.  Upon  the  indirect  cheque  and  the 
billets  a  ordre  there  was  formerly  a  charge  of  50  centimes  per 
1,000  francs,  with  a  minimum  of  50  centimes  and  5  centimes 
per  100  francs  additional,  while  the  bank  reserved  the  right 
to  withhold  remittance  during  24  hours  on  cheques  amount- 
ing to  500,000  francs  or  more.  Special  efforts  were  made 
during  the  war,  and  have  been  made  since,  to  popularize  the 
use  of  cheques,  which  prior  to  the  war  hardly  entered  into  the 
ordinary  business  transactions,  let  alone  transactions  between 
individuals.  To  that  end  the  bank  issued  an  attractive 
booklet  describing  and  illustrating  the  cheque  and  its  use. 

One  form  of  cheque  which  the  bank  introduced  from 
English  practise  might  well  be  adopted  also  in  the  United 
States.  This  is  what  is  known  in  English  banking  parlance 
as  the  "crossed  cheque."  A  "crossed  cheque"  is  payable  only 
when  presented  through  a  bank.    This  is  a  great  protection 


FRENCH  PUBLIC  FINANCE  [  263 

in  case  of  loss  or  theft.  The  cheque  circulaire  is  a  crossed 
cheque  payable  at  any  office  of  the  bank,  making  such  a 
cheque  a  very  convenient  form  of  remittance  which  can  be 
made  through  the  mails  without  risk  of  loss. 

There  is  now  no  charge  made  by  the  bank  for  opening  a 
deposit  or  draft  account,  for  the  books  of  blank  cheques, 
for  the  visa  by  the  bank  of  cheques  which  it  is  desired  to  have 
paid  at  a  branch  other  than  that  at  which  the  account  is 
opened,  nor  for  the  delivery  of  the  cheques  circulaires. 

The  bank  also  issues  letters  of  credit  in  the  usual  form, 
payable  at  any  one  of  its  offices. 

The  bank  issues  receipts  payable  on  sight  for  funds  tem- 
porarily deposited.  The  receipts  do  not  bear  interest.  The 
bank  collects  for  its  clients  bills  maturing  within  five  days, 
making  a  moderate  charge  for  the  service. 

Another  important  service  rendered  by  the  Bank  of 
France  is  that  of  safe-keeping  of  securities.  This  takes  two 
forms,  the  renting  of  safe-deposit  vaults  and  boxes,  and  the 
actual  physical  care  of  the  securities.  It  also  watches  for 
drawn  numbers  of  bond  issues.  The  bank  will  insure  holders 
against  the  risk  of  payment  at  par  of  bonds  held  by  them. 
Customers'  securities  are  kept  in  special  vaults,  surrounded 
with  every  conceivable  safeguard  against  fire,  mob  violence 
or  theft.  The  vaults  are  so  constructed  that  in  case  of  fire 
they  could  be  filled  and  covered  with  sand.  The  special 
staflF  alone  is  permitted  within  the  gratings.  The  numbers  of 
shares  and  bonds  are  listed  in  triplicate,  and  signed  by  the 
depositor  and  the  bank.  One  copy  is  held  by  the  depositor, 
one  by  the  bank  in  Paris  and  one  by  the  Havre  branch  of 
the  bank.  At  the  close  of  1920  there  were  136,470  customers' 
securities  accounts  represented  by  12,279,000  items.  The 
nominal  or  market  value  is  not  given. 


264  ]  BANKERS  TRUST  COMPANY 

The  bank  receives  for  its  clients  orders  for  securities  to 
be  executed  upon  the  bourse.  These  orders  in  192 1  totaled 
129,445  and  called  for  transactions  upwards  of  652  million 
francs.  The  bank  also  attended  to  the  execution  of  orders 
for  the  sale  of  securities  in  foreign  markets,  London,  New 
York,  Bale,  Berne,  Geneva,  and  other  places  including 
Buenos-Ayres, 

Relation  of  the  Bank  with  the  State 

As  we  have  already  seen,  the  bank  from  its  first  inception 
has  been  a  semi-state  institution.  Its  affairs  have  always 
been  under  state  supervision,  its  chief  officials  are  appointed 
by  the  head  of  the  state  and  in  times  of  stress  it  has  always 
been  the  chief  financial  prop  of  the  state.  These  facts  being 
so,  it  would  naturally  be  expected,  as  is  the  case  with  the 
Bank  of  England  and  the  Bank  of  Belgium,  that  the  Bank 
of  France  would  handle  for  the  state  the  collection  of  its 
revenues,  the  paying  out  of  its  funds  and  the  management 
of  the  debt. 

While  the  bank  performs  some  of  these  functions,  its 
relations  are  more  nearly  such  as  any  bank  renders  to 
important  clients. 

Depository  of  State  Funds:  It  is  the  only  depository  of  gov- 
ernment funds,  upon  which  it  is  not  required  to  pay  interest. 

It  acts  as  the  cashier  of  the  treasury,  whose  accountants 
can  all  pay  in  or  draw  upon  the  account  of  the  treasury  in 
all  of  the  offices  of  the  bank,  the  latter  making  the  necessary 
transfers  in  order  to  centralize  these  operations  in  Paris 
for  the  account  of  the  treasury. 

Miscellaneous  Services:  Since  1897  the  bank  has  trans- 
ferred for  the  treasury  from  one  part  of  the  country  to 
another  the  different  kinds  of  coin  required  for  circulation, 


FRENCH  PUBLIC  FINANCE  [  265 

has  furnished  the  necessary  service  for  the  issue  of  treasury- 
bills  and  has  paid  the  coupons  of  public  securities  at  the 
same  time  that  they  are  paid  at  the  government  offices.  All 
of  these  services  are  rendered  without  remuneration. 

Loans  to  the  State:  At  various  times  in  the  past,  in 
consideration  of  its  privileges,  the  bank  has  made  loans  to 
the  treasury  which  are  practically  gifts  because  they  bear 
no  interest  and  are  repayable  only  in  case  of  non-renewal 
of  the  bank's  privileges.  These  loans,  which  aggregate  200 
million  francs,  were  made  as  follows:  60  million,  June  9, 
1857;  80  million,  March  29,  1878;  40  million,  October  31, 
1896,  and  20  million,  November  11,  191 1. 

In  1857  the  bank  bought  from  the  state  100  million  3 
per  cent,  rentes.  This  investment  in  the  state  funds  is 
practically  of  a  permanent  character  also. 

In  addition  to  these  permanent  loans  the  bank,  as  we 
have  already  seen,  at  times  of  special  crisis  has  made  special 
loans.  Loans  of  this  character  made  since  1914  amounted 
at  the  end  of  December,  1921,  to  24,900  million  francs  and 
discounts  of  treasury  bills  for  account  of  foreign  governments 
were  4,142  million,  a  total  of  29,042  million.  At  the  close  of 
1920  it  was  agreed  that  the  loans,  which  at  one  time  during 
1920  stood  as  high  as  26,600  million,  should  be  reduced  at 
the  rate  of  2,000  million  francs  a  year  beginning  with  1922. 

The  advances  which  the  bank  made  to  the  state  during 
the  war  were  at  the  rate  of  i  per  cent.,  but  in  September, 
1914  it  was  stipulated  that  one  year  after  the  cessation  of 
hostilities  this  rate  should  be  raised  to  3  per  cent.  This 
additional  2  per  cent,  was  not  to  be  counted  in  the  profits  of 
the  bank  but  was  meant  to  form  a  special  account  of  amorti- 
zation destined  to  help  in  reducing  the  state's  debt  to  the 
bank. 


266  ]  BANKERS  TRUST  COMPANY 

According  to  the  terms  of  later  agreements  this  interest 
of  3  per  cent,  will  be  credited  to  the  amortization  'account 
up  to  2^  per  cent,  for  the  first  twenty-one  biUion  and  2^ 
per  cent,  for  the  amount  included  between  the  twenty-first 
and  twenty-fourth  billion  and  3  per  cent,  (that  is  to  say 
the  total  interest)  for  the  3  billion  from  the  24th  to  the  27th. 

Taxes:  The  bank  is  subjected  to  all  general  taxes  imposed 
upon  private  companies.  It  also  pays  certain  special  taxes. 
The  taxes  paid  in  1920  and  in  1921  were  as  follows: 

TAXES  PAID  BY  BANK  OF  FRANCE 

IN  1920  AND  IN  1921 

(In  francs — 00,000  omitted) 

1920         192 I 

1.  Direct  contributions 7,8  8,4 

2.  Stamp  tax  on  circulation 14,9  9,0 

3.  Stamp  tax  on  shares  of  stock 0,1  0,1 

4.  Tax  on  dividends 5,2  5,5 

5.  Tax  on  dividends  in  excess  of  240  francs  per 

share 2,7  5,5 

6.  Royalty  to  the  state,  stipulated  by  Article  5 

of  the  law  of  November  17,  1897,  and  cal- 
culated by  multiplying  the  average 
amount  of  the  productive  circulation  by 
one-eighth  of  the  average  rate  of  discount      57,0  87,2 

7.  Tax  upon  the  revenues  of  the  debts    ...        0,1  0,3 

8.  Share  of  the  state  of  earnings  from  the  rate 

of  discount  above  5  per  cent.   .....      15,9         20,0 

9.  Sinking  fund  (Law  of  December  20,  1918): 

Special  contribution  upon  the  proceeds  of 
the  advances  to  the  state  and  discounts 
of  treasury  bonds  for  advances  of  the 

state  to  foreign  governments 328,2        805,9 

10.    Interest  on  the  above 3,5  2,7 

Total 435,4       944,6 

Both  in  1920  and  1921  the  bank  returned  to  the  govern- 
ment nearly  all  of  its  earnings  from  government  business. 


FRENCH  PUBLIC  FINANCE 


267 


We  have  already  called  attention  to  the  large  amount  of 
business  transacted  by  the  bank  for  the  government  for 
which  it  receives  no  compensation.  It  will  be  seen  that  the 
Bank  of  France,  in  return  for  its  valuable  franchise,  gives 
to  the  state  in  free  services  and  taxes  a  liberal  proportion 
of  its  earnings,  reserving  for  its  own  stockholders  practically 
only  its  earnings  from  commercial  sources,  from  which  must 
be  deducted  the  expenses  of  conducting  the  business  before 
any  dividend  distribution  can  be  made.  These  facts  are 
brought  out  in  the  statement  of  the  income  account  which 
follows. 

Income  Account 

The  Bank  of  France  publishes  annually  statements  of 
income  and  disbursements.  Following  is  a  condensed  com- 
parative statement  of  its  operations  from  1910  to  192 1, 
inclusive.     An   inspection   of  this   statement   develops   the 

EARNINGS  OF  THE  BANK  OF  FRANCE 

1910-1921 

(In  francs — 000  omitted) 


Year 

Commercial 
Earnings 

Earnings 

from 

Government 

Business 

Grand 
Total 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

1921 

67,210 
80,676 
94,828 
123,507 
124,337 
137,132 
220,492 
152,816 

171,851 
244,718 
360,076 
456,519 

'  8,602 
56,900 
71,530 
239,692 
316,304 
397,164 
474,139 
953,209 

67,210 
80,676 
94,828 
123,507 
132,939 
194,032 
292,022 
392,508 

488,155 
641,882 

834,215 
1,409,728 

268 


BANKERS  TRUST  COMPANY 


DISPOSITION  OF  EARNINGS  OF  THE  BANK  OF  FRANCE 
1910-1921 

(In  francs — 000  omitted) 


Year 

Taxes 

Expenses 
and 
Depre- 
ciation 

Real 

Estate 

Acquired 

Reserve 
Accounts 

Divi- 
dends 

Net 

Grand 
Total 

1910 
1911 
1912 

1913 
1914 

1915 
1916 
1917 
1918 
1919 
1920 
1921 

9,298 

10,937 

12,733 

18,127 

20,581 

23,010 

39,752 

163,329 

290,553 

321,938 

435,410 

944,631 

22,575 

25,500 

26,895 

30,866 

47,037 

91,570 

144,224 

67,464 

•88,515 

145,149 

210,786 

217,304 

16,000 

12,000 

25,000 
82,706 
57,209 
14,374 

8,787 
18,689 
26,999 
22,014 
30,646 
43,952 
52,146 

117,915 
40,287 
48,289 

84,273 
184,144 

25,550 
25,550 
29,201 
36,500 

34,675 
36,500 
43,800 
43,800 
43,800 
43,800 
46,537 
49,275 

67,210 
80,676 
94,828 
123,507 
132,939 
194,032 
292,022 
392,508 

488,155 
641,882 

834,215 
1,409,728 

fact  that  the  war  conditions  greatly  increased  the  earnings, 
both  gross  and  net.  It  will  be  found  advantageous  to 
compare  this  account  with  the  balance  sheet.  One  helps  to 
elucidate  the  other. 

Balance  Sheet 

In  concluding  this  account  of  the  business  and  functions 
of  the  Bank  of  France  we  print  a  copy  of  its  balance  sheet 
for  the  close  of  1921,  as  presented  to  the  general  assembly 
of  stockholders  in  January,  1922.  The  statement  is  printed 
exactly  as  published,  except  that  the  terms  have  been  done 
into  English. 

It  is  believed  that  the  descriptive  notes  following  the 
table,  taken  in  connection  with  the  explanations  already 
given  in  regard  to  the  business  methods  of  the  bank,  will 
make  the  statement  easily  understandable. 

We  are  sure  that  our  readers  will  be  impressed,  as  we  have 
been,  with  the  clearness  of  the  accounting  methods  of  the 


FRENCH  PUBLIC  FINANCE  [  269 

bank  and  also  with  the  complete  data  put  before  clients  and 
public,  week  by  week  and  at  the  end  of  the  year.  The  num- 
bers at  the  left  of  the  table  refer  to  the  explanatory  notes 
following. 

BALANCE  SHEET  OF  THE  BANK  OF  FRANCE 

AND  ITS  BRANCHES 

December  31,  1921 

(In  francs — 00,000  omitted) 


Assets 

rCold     ......  3,575,8 

(i)    Cash     and     bullion     at    Gold  held  abroad  .  1,948,4 

Paris,  in  the  Branches  <  


5,804,0 


2,283,5 


12,9 


and  abroad |  5,524,2 

[Silver 279,8 

Balance  abroad 607,7 

Bills  past  due      0,6 

Discounted  Bills,  Paris 1,272,5! 

Discounted  Bills,  Branches 1,01  i,oJ 

(2)  Bills  prorogued,  Paris I7,81 

Bills  prorogued.  Branches 40,0/ 

(3)  Loans  upon  bullion  and  coin,  Paris     ....         12,9 

Loans  upon  bullion  and  coin,  Branches      

Loans  upon  securities,  Paris 4ii,ll 

r>       2  27  s  7 
Loans  upon  securities.  Branches 1,864,6)         *  '^*' 

(4)  Loans  to  the  State  (permanent)      200,0 

(5)  Loans  to  the  State  (account  Great  War) 24,900,0 

(6)  French  treasury  bills  discounted  for  loans  of  the  State 

to  foreign  governments 4,142,0 

(7)  Rentes  for  the  surplus  reserve 13,0 

(7)    Rentes  for  the  surplus  reserve,  free 101,8 

(7)  Rentes  for  the  surplus  reserve,  permanent 100,0 

Building  and  fixtures  of  the  bank  and  buildings  of  the 

branches 54,2 

Employment  of  the  special  reserve  (see  per  contra)     .  8,4 

(8)  Sundry 1,914,3 

Total 42,475.9 


270 


BANKERS  TRUST  COMPANY 


(9) 
(10) 

(II) 
(12) 
(13) 
(14) 


(14) 
(15) 
(16) 
(17) 


BALANCE  SHEET  OF  THE  BANK  OF  FRANCE 

AND  ITS  BRANCHES 

December  31,  1921 

(In  francs — 00,000  omitted) 


Liabilities 

Capital  of  the  Bank 

Profits  added  to  capital  (surplus) 

Reserves  "mobilieres" 

Real  estate  reserves 

Special  reserve 

Sinking  Fund: 

Guaranteed  amortisement 

Excess  profits  applied  to  the  amortisement  of  the 

advances  to  the  State 

Interest  added  to  sinking  fund 

Bank  notes  in  circulation      

Interest  collected  on  securities  deposited  or  transferred 
Cashiers'  cheques  and  receipts  payable  at  Paris  and 

branches  

Current  account  of  treasury 

Current  accounts  and  deposit  accounts,  Paris     1,738,7 
Current    accounts    and    deposit    accounts, 

Branches      962,6 

Dividends  payable 

Unearned  discount 

Transfers  to  the  reserves  and  to  the 
pension  funds  and  for  extra  re- 
muneration of  employees   .... 

Dividend 

Transfer  to  the  State  of  a  sum  equal 
to  the  portion  of  the  annual  divi- 
dend in  excess  of  240  francs  net  . 
Carried  to  next  account 


Profits 

and 
Losses 


52,9 
27,4 


(8)    Sundry 


182,5 

38,1 

22,1 

4,0 

8»4 

556,9 

1,257,9 
8,8 

36,417,4 
65,0 

1,0 
5.1 

2,701,3 

3,8 
13,1 


89,1 


1,061,5 


Total 42,475,9 


FRENCH  PUBLIC  FINANCE  [  271 

DESCRIPTIVE  NOTES 

(i)  ''Gold  Held  Abroad''  represents  gold  on  deposit  in  England, 
Spain  or  elsewhere  as  collateral  for  loans  from  those  governments  to 
the  government  of  France.  We  naturally  find  no  item  on  the  liability 
side  of  the  balance  sheet  to  offset  this  item  on  the  asset  side,  this  gold 
being  regarded  as  belonging  to  the  Bank  of  France,  but  loaned  to  the 
government  of  France,  and  against  which  the  government  has  issued  no 
treasury  bills  but  only  a  receipt.  Likewise  neither  the  Bank  of  Eng 
land  nor  the  Bank  of  Spain  treat  these  gold  items  as  an  asset  of  theirs. 

(2)  ''Bills  Prorogued''  represent  paper  that  has  matured,  the  pay- 
ment of  which  has  been  deferred  on  account  of  the  war  (a  moratorium 
having  been  declared  in  1914)  and  which  is  now  gradually  being  paid 
up.  This  item  will  eventually  disappear  entirely  from  the  statement. 
See  page  43. 

(3)  "Loans  on  Bullion  and  Specie":  It  is  a  practice  in  France  for 
individuals  and  banks  to  deposit  precious  metals  with  the  Bank  of 
France  as  collateral  for  loans. 

(4)  "Loans  to  the  State"  {Permanent):  See  "Relations  of  the  Bank 
to  the  State,"  page  265. 

(5)  "Loans  to  the  State"  {Account  Great  War):  See  "Relations  of 
the  Bank  to  the  State,"  page  265. 

(6)  See  pages  15,  250. 

(7)  The  bank  is  required  by  law  to  keep  invested  in  French  rentes 
more  than  one-half  of  its  capital  and  of  its  reserve  funds  {i.e.,  its  surplus) . 

(8)  "Sundry":  It  is  the  custom  for  the  Bank  of  France  to  make  out 
its  balance  sheet  on  Thursday  of  each  week,  while  the  branches  make 
out  their  balances  on  Saturday  of  each  week.  There  results,  therefore, 
a  large  number  of  items  which  are  in  the  process  of  readjustment. 
These  are  lumped  into  the  item  "Sundry."  In  like  manner,  each  of. 
the  branches  has  an  item  which  it  calls  "Sundry,"  and  naturally  the 
sum  of  the  sundry  items  of  the  branches  helps  to  swell  the  same  item 
in  the  Bank  of  France  statement. 

^  (9)  Capital:  Shares  1,000  francs  each;  original  number  30,000; 
raised  to  45,000  in  1803 -1804;  raised  to  90,000  in  1807;  reduced  by 
purchase  of  15,000  shares  to  75,000;  increased  by  sale  of  6,000  shares 
to  Napoleon  to  81,000;  apparently  the  remaining  treasury  shares  were 
also  resold  prior  to  18 14;  reduced  thereafter  by  successive  purchases 
to  67,900  in  1 8 17.  The  reduction  to  the  latter  amount  was  legalized 
in  1823.  Increased  in  1848  by  consolidation  with  departmental  banks 
to  91,250  shares.  Amount  of  stock  doubled  in  1857  to  182,500  shares.- 
Original  shares  issued  at  par.  Subsequent  issues  made  as  follows: 
1803-1804  at  1,068  francs  to  1,089.77  francs  per  share;  in  1807  at  1,200 
francs;  in  1857  at  1,100  francs. 

Transfers:  The  shares  of  the  bank  are  all  issued  to  the  order  of  the 
owner.     They  are  transferable  on  the  books  of  the  bank  in  Paris. 


272  ]  BANKERS  TRUST  COMPANY 

Signatures  of  owners  or  of  their  attorneys  in  fact  must  be  witnessed  by 
a  member  of  the  bourse  in  Paris  or  in  any  other  city  where  there  is  a 
stock  exchange.  Elsewhere  they  must  be  witnessed  by  a  notary. 
Shares  may  be  "immobilisees,"  that  is  put  in  the  category  of  real  estate 
by  declaration  of  the  owner.  A  shareholder  may  part  with  the  usufruct 
of  the  shares  and  dispose  separately  of  his  property  rights.  Dividends 
are  payable  at  the  bank  in  Paris,  also  at  any  branch,  on  July  i  and 
January  i .  The  shares  sell  ex-dividend  the  day  following  its  declaration 
by  the  bank,  usually  from  the  22nd  to  27th  of  June  and  December, 
respectively. 

(10)  Profits  Added  to  Capital  {Surplus):  Surplus  or  profits  in  addi- 
tion to  the  capital  accruing  from  raising  the  rate  of  discount  above  a 
certain  fixed  rate  and  which,  according  to  the  terms  of  the  law,  cannot 
be  distributed. 

(11)  Reserves  "mobilieres":  The  surplus  coming  from  different 
sources  and  notably  from  profits  accumulated  before  1834;  from  the 
surplus  of  departmental  banks  absorbed  in  1848;  from  the  premium 
on  the  new  shares  issued  at  the  time  of  the  doubling  of  the  capital  in 
1857;  amounting  in  all  to  22,105,750  francs,  viz.: 

(a)  10,000,000  francs  by  virtue  of  the  law  of  the  17th  of  May,  1834; 

(b)  2,980,750  francs  coming  from  the  departmental  banks  which 
were  united  to  the  Bank  of  France  (decree  of  the  27th  of  April, 
1848,  art.  5); 

(c)  9,125,000  francs  (law  of  the  9th  of  June,  1857,  art.  4). 

(12)  Real  Estate  Reserve:  Real  estate  surplus,  representing  in  the 
books  the  value  of  the  central  bank  building;  4,000,000  francs  (law  of 
the  17th  of  May,  1834). 

(13)  Special  Reserve:  The  special  surplus  constituted  in  order  to 
insure  the  relative  stability  of  dividends. 

(14)  Sinking  Fund  {Law  of  December  20,  igi8):  This  sinking  fund 
was  created  as  a  special  reserve  against  the  loans  made  to  the  state 
during  the  great  war.  It  is  built  up  by  transferring  to  the  account 
50  per  cent,  of  the  interest  collected  upon  the  loans  to  the  state,  also 
85  per  cent,  of  the  proceeds  of  the  discount  collected  on  the  treasury 
bills  purchased  from  the  state  to  provide  for  advances  to  foreign  govern- 
ments. For  the  period  elapsed  between  August  i,  19 14  and  the  end 
of  1917  there  was  paid  in  a  lump  sum  of  200,000,000  francs.  These 
payments  are  made  by  the  bank  in  lieu  of  the  war  profits  tax.  See  also 
last  paragraph,  page  265. 

(15)  Bank  Notes  in  Circulation:  At  the  present  time  the  note  cir- 
culation is  "a  cours  force,''  i.e.,  forced,  irredeemable  in  specie.  The 
great  increase  in  the  note  circulation  since  19 14  has  been  made  necessary 
by  the  loans  to  the  state  and  discounts  of  treasury  bills  for  loans  to 
foreign  nations.  See  per  contra  items  5  and  6,  For  other  data  consult 
the  Index.     Previous  periods  of  suspension  of  specie  payments  were 


FRENCH  PUBLIC  FINANCE  [  273 

from  March  15,  1848  to  August  6,  1850,  due  to  the  revolution  of  that 
period  and  from  August  12,  1870  to  January  i,  1878,  due  to  the  war 
with  Prussia.  Since  1870  Bank  of  France  notes  have  been  a  legal  tender 
for  debts,  both  public  and  private. 

(16)  ''Interest  on  Securities  Transferred  or  Deposited^':  The  Bank 
of  France  holds  securities  of  customers  on  which  it  collects  coupons  and 
likewise  acts  as  transfer  agent  for  some  issues,  including  government 
bonds.  As  the  bank  collects  the  interest  due  on  such  bonds,  it  prop- 
erly treats  this  amount  as  a  liability  pending  its  distribution  to 
customers. 

(17)  " Cashiers'  Cheques,'"  Etc.:  These  are  letters  of  credit  and  bank 
drafts  issued  by  the  branches  to  customers  and  payable  in  Paris. 


Chapter  XXII 

Ownership,  Government  and  Home 
of  the  Bank  of  France 

^TpHE  Bank  of  France  during  all  the  period  of  its  existence 
-■-  has  maintained  complete  independence  so  far  as  political 
bias  or  control  is  concerned.    No  charge  has  ever  been  made 
that  the  bank  favored  or  aided  any  political  party. 

Ownership 

The  bank  is  entirely  owned  by  its  stockholders.  For 
many  years  none  of  its  stock  has  been  held  by  the  state, 
that  which  was  originally  purchased  having  been  disposed  of 
to  the  public.  The  stock  is  182,500,000  francs  divided  on 
December  24,  1921,  among  33,781  stockholders.  The  par 
value  of  the  shares  is  1,000  francs,  equal  at  par  of  exchange 
to  $200.  Its  market  value  at  the  close  of  1921  was  5,530 
francs — say,  ^1,106.  There  were  then  11,952  stockholders 
holding  only  one  share  of  stock  each.  There  were  7,398 
persons  who  had  only  two  shares  and  7,509  who  held  between 
three  and  five  shares.  Thus  10.6  per  cent,  of  the  stock,  was 
held  by  those  who  owned  two  shares  or  less  and  over  20  per 
cent,  by  those  who  owned  five  shares  or  less.  A  very  large 
percentage  of  the  stockholders  are  women.  Only  the  200  lar- 
gest stockholders  have  a  voice  in  the  management  of  the  bank. 

State  Control 

Notwithstanding  the  fact  of  exclusive  private  ownership, 
the  state  in  accordance  with  the  Law  of  April  22,  1806, 
which  it  will  be  remembered  was  passed  at  the  direction  of 
274] 


FRENCH  PUBLIC  FINANCE  [  275 

Napoleon,  exercises  a  very  close  supervision  over  the  affairs 
of  the  bank.  This  supervision  is  secured  through  the  fact 
that  the  governor  and  the  two  sub-governors  are  appointed 
by  the  President  of  the  Republic  upon  the  nomination  of 
the  minister  of  finance,  and  are  understood  to  be  removable 
at  his  pleasure,  but  this  power,  as  a  matter  of  fact,  has  never 
been  exercised.  In  case  of  disagreements  arising  in  regard 
to  the  internal  administration  of  the  bank  or  in  regard  to  the 
application  of  the  laws  and  statutes  governing  them,  such 
matters  are  regulated  by  the  council  of  state  which  acts 
when  required  to  do  so  by  the  minister  of  finance. 

The  Governor  and  Sub-Governors 

The  governor  of  the  Bank  of  France,  appointed  as  stated 
above,  must  own  at  least  loo  shares  of  the  stock  of  the  bank 
and  each  of  the  two  sub-governors  must  own  at  least  50 
shares.  These  shares  of  stock  must  be  held  by  these  officials 
during  their  entire  term  of  office.  The  terms  of  service  of  the 
governor  and  sub-governors  are  not  limited  to  any  fixed 
period.  M.  Georges  Pallain,  who  so  ably  guided  the  bank 
through  the  trying  times  of  the  great  war,  became  governor 
in  1898  and  only  surrendered  his  office  to  his  successor,  M. 
Georges  Robineau,  at  the  close  of  1920. 

According  to  the  testimony  of  M.  Rouland,  a  former 
governor,  given  before  an  official  body  in  1865,  the  governing 
body  of  the  bank  consists  of  two  perfectly  distinct  elements; 
one  being  the  portion  chosen  by  the  state  and  the  other  that 
chosen  by  the  shareholders.  The  persons  chosen  by  the 
state,  namely  the  governor  and  two  sub-governors,  he  stated, 
were  bound  to  see  that  the  business  of  the  bank  was  carried 
on  for  the  public  advantage.  It  is  their  duty,  he  said,  to 
see  that  the  statutes  of  the  bank  are  not  overstepped  and 


Z76  ]  BANKERS  TRUST  COMPANY 

that  the  interests  of  trade  and  commerce  are  attended  to. 
It  is  from  them  that  the  proposals  to  raise  or  lower  the  rate 
of  discount  appear  almost  invariably  to  proceed.  He  claimed 
that  during  62  years  it  did  not  happen  twice  that  the  council 
had  had  to  propose  that  the  rate  of  discount  should  be  raised 
or  lowered,  the  suggestion  had  come  from  the  governor.  He 
said,  "nothing  of  any  description  which  concerns  the  great 
interests  of  the  public,  nothing  which  concerns  the  larger 
duty  which  the  bank  has  to  perform  toward  commerce  and 
industry,  nothing  of  all  that  class  of  business  belongs  to  or  is 
left  to  the  discretion  of  the  'interested  party.'"  By  the 
"interested  party,"  M.  Rouland  is  understood  to  have 
meant  the  governing  body  or  council  which  directly  repre- 
sents the  shareholders.  Although  this  testimony  was  given 
many  years  ago,  it  is  understood  still  to  reflect  the  facts  in 
regard  to  the  importance  of  the  governor  and  sub-governors 
in  the  management  of  the  bank  and  their  relations  to  the 
council,  the  position  and  functions  of  which  are  described  in 
a  subsequent  paragraph. 

The  governor  presides  at  meetings  of  the  general  assembly 
of  shareholders,  also  at  meetings  of  the  general  council  and 
of  all  committees.  He  is  charged  with  the  internal  adminis- 
tration of  the  bank  and  with  the  execution  of  the  decisions 
of  the  council,  also  of  the  laws  and  decrees  under  which  the 
bank  operates.  It  is  understood  that  a  great  part  of  the 
detail  of  the  management  of  the  bank  rests  upon  the  two 
sub-governors.  The  salary  of  the  governor  is  60,000  francs 
and  of  the  sub-governors  30,000  francs  each. 

The  General  Assembly 

The  General  Assembly  of  the  bank  is  composed  of  200 
of  the  largest  stockholders  who  must  also  be  French  citizens. 


FRENCH  PUBLIC  FINANCE  [  277 

They  must  be  present  in  person  at  meetings  and  vote  per- 
sonally. They  cannot  be  represented  by  proxies.  They  have 
only  one  vote  each,  no  matter  how  many  shares  they  may 
hold.  This  assembly  elects  the  regents  and  censors  and  is 
authorized  to  criticize  the  annual  balance  sheet  of  trans- 
actions presented  by  the  council. 

Besides  the  annual  meeting  which  takes  place  in  January, 
the  shareholders  may  be  called  to  meet  in  extraordinary 
session  if,  through  resignation  or  death,  the  number  of 
regents  is  reduced  to  12  or  the  number  of  censors  to  one, 
or  if  it  is  so  ordered  by  the  censors,  upon  recommendation  of 
the  general  council. 

General  Council 

The  General  Council  is  composed  of  the  governor,  the 
two  sub-governors,  15  regents  and  3  censors.  The  regents 
and  censors  are  elected  at  the  annual  meeting  of  the  General 
Assembly.  Three  regents  and  one  censor  are  elected  each 
year. 

Regents:  Five  regents  out  of  the  fifteen  must  be  chosen 
from  among  manufacturers  or  merchants  who  are  share- 
holders of  the  bank  and  three  from  among  the  treasurers- 
general  (these  are  officials  of  the  treasury  department). 
Regents  must  own  at  least  30  shares  of  stock  during  the 
period  of  their  service.  They  are  not  paid,  but  a  "presence 
slip"  is  given  them,  the  value  of  this  slip  being  determined  at 
the  general  meeting.  The  duties  of  the  regents  do  not  differ 
much  from  those  of  any  other  director  of  an  ordinary  cor- 
poration. They  meet  at  least  once  a  week,  but  cannot  make 
any  decision  unless  at  least  ten  of  their  number  are  present 
and  one  of  the  censors.  They  supervise  all  departments  of 
the  bank,  fix  the  rates  of  discount  and  of  interest,  determine, 


278  ]  BANKERS  TRUST  COMPANY 

subject  to  the  approval  of  the  censors,  upon  the  issuance  of 
bank  notes,  and  make  an  annual  report  to  the  assembly  of 
stockholders. 

Censors:  The  special  mission  of  the  censors  is  to  super- 
vise all  the  bank's  transactions  and  to  this  end  they  may  ask 
to  see  all  accounts,  registers  and  securities-portfolios  when- 
ever they  judge  fit  to  do  so.  At  least  one  censor  attends  all 
meetings  of  the  regents  and  any  action  in  regard  to  the 
issuance  of  bank  notes  must  meet  with  their  unanimous 
approval.  They  do  not  have  the  right  of  voting,  but  they 
may  discuss  the  affairs  of  the  bank  and  may  propose  such 
steps  as  seem  to  them  useful  or  appear  to  be  in  the  interest 
of  the  bank.  In  addition  to  attending  the  meetings  of  the 
council,  they  also  attend  the  meetings  of  the  committees  of 
bank  notes,  bookkeeping  and  securities-portfolio. 

Committees 

The  General  Council  is  divided  into  five  departments  or 
committees  as  follows:  Committee  of  Discount,  Committee 
of  Bank  Notes,  Committee  of  Funds,  Committee  of  Book- 
keeping and  Securities-Portfolio,  Committee  of  Relations 
with  Public  Treasury  and  the  Treasurers-General. 

Discount  Board  and  Committee  of  Discount :  The  discount 
board  was  established  in  1803.  It  is  composed  of  twelve 
members  appointed  by  the  censors  from  a  list  proposed  by 
the  general  council  selected  from  among  the  stockholders 
doing  business  in  Paris  who  own  at  least  ten  shares.  Its 
members  are  renewed  each  three  months  and  may  be  re- 
elected. They  examine  and  pass  upon  bills  presented  for 
discount  and  also  assist  the  governor  and  the  general  council, 
in  the  classification  of  credits.  This  classification  is  revised 
each  year. 


FRENCH  PUBLIC  FINANCE  [  279 

The  committee  of  discount  which  is  composed  of  three 
regents  and  the  members  of  the  discount  board  decides  as 
to  what  bills  are  acceptable  for  discount. 

Committee  of  Bank  Notes:  This  committee  is  renewed  by 
one-third  each  month  and  outgoing  members  cannot  be  re- 
elected before  a  period  of  six  months  has  elapsed.  This  com- 
mittee is  in  charge  of  transactions  relating  to  the  making  up, 
signing  and  registering  of  bank  notes  and  turning  them  into 
the  general  funds.  It  supervises  the  verification  of  cancelled 
notes  or  those  taken  out  of  circulation  and  also  sees  that  all 
formalities  in  regard  to  their  cancellation  are  strictly  carried 
out.  Among  such  formalities  is  the  very  important  one  of 
reducing  cancelled  notes  to  a  paste.  Formerly  cancelled 
bank  notes  were  burned  within  the  premises  of  the  bank, 
but  at  present  they  are  put  into  iron  cylinders  and  reduced 
to  a  paste  which  is  sold  to  French  industries  and  used  in  the 
making  of  cardboard.  All  these  different  transactions  are 
noted  on  a  special  register  in  the  presence  of  the  general 
secretary,  the  comptroller  general  and  the  chief  accountant 
of  bank  notes,  and  a  report  is  made  to  the  general  council. 
It  is  also  the  duty  of  the  committee  to  examine  all  claims 
in  regard  to  bank  notes  deteriorated  by  use  or  accident.  As 
stated  above,  the  censors  must  unanimously  approve  the 
acts  of  this  committee. 

Committee  of  Bookkeeping  and  Securities-Portfolio:  This 
committee  is  organized  in  the  same  manner  as  that  on  bank 
notes.  Its  duty  is  to  supervise  the  accounting  of  the  bank 
and  examine  securities  held  in  the  portfolio.  It  controls  the 
annual  classification  of  credits  which  the  discount  department 
notes  carefully  each  day.  It  also  keeps  a  register  of  bank- 
ruptcies, on  which  register  are  entered  each  day  the  date  and 
names  and  other  information  in  regard  to  each  bankruptcy. 


28o  ]  BANKERS  TRUST  COMPANY 

Committee  of  Funds:  This  committee  is  renewed  every 
three  months  and  is  charged  with  the  verification  of  the  cash 
and  securities  at  least  once  a  week. 

Committee  of  Relations  with  Public  Treasury  and  the 
Treasurers-General:  This  committee  is  renewed  by  one-fifth 
every  six  months.  Outgoing  members  cannot  be  re-elected 
before  a  period  of  six  months  has  elapsed.  Its  duty  consists 
in  the  supervision  of  the  relations  of  the  Bank  of  France  with 
the  public  treasury  and  treasurers-general. 

Branches 

On  December  31,  1921,  the  Bank  of  France  had  604 
"bankable  places."  These  included  the  central  office  and  16 
other  offices  in  Paris  and  its  suburbs;  and  in  the  provinces 
147  full  branches,  71  auxiliary  bureaus  and  369  agencies.  The 
annual  report  for  1921  states  that  the  business  of  the  branches 
and  agencies  amounted  in  192 1  to  43,927  million  francs, 
34,641  million  in  the  provinces  and  9,286  million  in  Paris 
and  its  suburbs.  As  the  business  at  the  main  office  in  Paris 
amounted  to  20,794  iriillion  it  will  be  seen  that  the  provincial 
branches  handled  a  little  more  than  52  per  cent,  of  the  total 
business  of  the  bank  for  the  year.  The  bank  is  constantly 
opening  new  branches  or  agencies  as  the  general  business 
conditions  make  it  desirable  to  do  so. 

Management:  The  business  of  the  branches  is  conducted 
under  the  supervision  of  a  manager  appointed  by  the  Presi- 
dent of  the  Republic  upon  the  nomination  of  the  minister  of 
finance,  upon  recommendation  to  him  of  three  candidates 
by  the  governor  of  the  bank.  The  manager  is  assisted  by  a 
local  board  of  directors  selected  from  among  the  best  qualified 
commercial,  industrial  and  agricultural  representatives  in  the 
region  where  the  bank  is  located.    The  policy  of  the  bank  is 


FRENCH  PUBLIC  FINANCE  [  281 

to  leave  as  much  initiative  as  possible  in  the  conduct  of  the 
current  business  of  the  branches  to  their  managers.  The 
managers  are  assisted  by  the  members  of  their  local  board  in 
whom  they  find  authorized  and  enlightened  interpreters  of 
the  commercial  needs  of  the  region  where  the  bank  its  located. 
Their  management  is  subject  to  control  and  regular  inspec- 
tion from  the  central  office  in  Paris.  Matters  of  exceptional 
importance  must  be  referred  to  the  central  bank  under  whose 
supreme  authority  the  managers  of  the  branches  always  re- 
main. The  managers  receive  fixed  salaries  and  certain  per- 
quisites, such  as  living  apartments,  light  and  heat.  The 
members  of  the  local  board  of  administrators  receive  no 
regular  pay  except  for  the  "presence  slips"  similar  to  those 
received  by  the  members  of  the  general  council  of  the  parent 
bank. 

Each  branch  upon  its  establishment  is  allowed  a  capital 
fixed  by  the  general  council. 

Auxiliary  Offices 

The  management  of  the  auxiliary  offices  is  the  same  as  that 
of  the  branches  except  that  the  managers  have  no  local 
board  to  assist  them.  All  discounts  are  referred  to  the 
manager  and  the  local  board  of  the  branch  to  which  the 
auxiHary  is  related.. 

Employees 

Pensions:  Since  the  origin  of  the  bank  a  system  of 
pensions  has  been  in  force  which  is  particularly  advantageous 
to  the  employees.  After  30  years  of  service  an  amount  is 
guaranteed  to  each  person  having  a  right  thereto  equivalent 
to  at  least  one-half  of  the  annual  salary.  The  bank  also  adds 
benevolent  allowances  which  it  gives  out  of  its  general  re- 


282  ]  BANKERS  TRUST  COMPANY 

sources  and  which  are  fixed  according  to  the  services  ren- 
dered and  to  the  personal  condition  of  the  employee. 

Investments  of  Pension  Fund:  The  pension  fund  on 
December  31,  1921,  held  225  shares  of  the  Bank  of  France, 
upwards  of  four  and  a  half  million  francs  in  government 
bonds  and  over  eight  million  francs  in  other  interest  bearing 
securities.  The  pension  fund  for  women  employees  at  the 
same  date  held  interest  bearing  securities  having  a  par  value 
of  i,429,CHDO  francs. 

Profit-Sharing:  The  bank  allows  all  of  its  staff  to  par- 
ticipate in  the  results  of  particularly  productive  years  by  a 
general  and  exceptional  allowance. 

Number  of  Employees:  At  the  close  of  the  year  1921  there 
were  1,790  regular  employees  connected  with  the  central  bank 
and  3,235  connected  with  the  branches  and  auxiliaries,  a  total 
of  5,025.  In  addition  there  were  7,763  persons  employed  by 
the  day. 

The  Home  of  the  Bank  in  Paris 

The  central  office  of  the  Bank  of  France  is  located  in 
Paris  at  No.  i  rue  de  la  Vrilliere.  The  main  entrance  is 
through  a  court,  the  gates  of  which  open  toward  a  little 
street  leading  out  to  the  Place  des  Victoires.  There  are 
three  other  large  courts.  It  faces  on  four  streets.  This 
building  was  originally  constructed  in  1620  for  Raymond 
Phelippeaux,  due  de  la  Vrilliere,  Secretary  of  State,  by 
Francois  Mansard.  It  was  bought  from  the  family  of  La 
Vrilliere  in  1705  by  M.  Rouille,  afterwards  General  Director 
of  the  Finances,  from  whom  it  was  purchased  in  1713  by  the 
Comte  de  Toulouse,  son  of  Louis  XIV  and  Mme.  de  Mon- 
tespan.  By  inheritance  it  became  the  property  of  the  Due 
de  Penthievre  who  was  one  of  those  to  lose  his  life  during  the 


FRENCH  PUBLIC  FINANCE  [  283 

revolution  when  the  property  appears  to  have  been  confis- 
cated by  the  state.  The  national  printing  office  was  estab- 
lished there,  where  it  remained  until  1808.  In  1803  the  Bank 
of  France  purchased  the  building  from  the  government  and 
in  181 1  entered  upon  its  occupation.  Since  then  the  building 
has  several  times  been  enlarged,  the  last  improvements  having 
been  of  a  very  recent  date.  The  exterior  of  the  bank  building 
is  quite  severe,  but  it  is  relieved  by  some  fine  statuary.  The 
interior  arrangements  of  the  bank  provide  for  handsome  wait- 
ing rooms  for  the  public  and  offices  for  the  executive  staff, 
with  very  fine  and  complete  arrangements  for  the  convenient 
conduct  of  the  business  by  the  large  force  of  employees. 

The  incomparable  Galerie  Doree  of  Mansard  is  still 
preserved.  In  this  salon  of  the  old  palace,  with  its  wonderful 
interior  in  Louis  XV  style  and  its  famous  paintings,  have 
always  been  held  the  meetings  of  the  general  council  and 
the  annual  assembly  of  the  shareholders.  The  governor's 
offices,  just  across  the  corridor,  are  large  but  severe  in  style. 

To  give  some  idea  of  the  size  of  the  bank  building  it  may 
be  of  interest  to  note  that  the  "galerie  des  recettes,"  which 
handles  collections  of  all  sorts  throughout  Paris,  has  275 
separate  cages  and  cashiers'  windows,  each  cage  containing 
one  teller  and  two  assistants. 

In  the  cellars  of  the  bank  are  located  the  money  and 
securities  vaults  where  there  are  stored  not  only  the  gold 
and  silver,  the  stocks,  bonds  and  other  securities  of  the 
bank,  but  also  the  securities,  jewels  and  other  valuables  of  its 
many  clients. 

The  bank  is  carefully  guarded  night  and  day  not  only  by 
its  own  special  officers  but  also  by  soldiers  detailed  for  that 
duty. 

The  bank  owns  much  property  contiguous  to  its  main 


284  ]  BANKERS  TRUST  COMPANY 

office  which  in  time  will  be  improved  with  additional  buildings 
as  its  business  may  require. 

In  addition  to  the  group  of  buildings  in  which  its  head 
office  is  located,  the  bank  owns  dignified  buildings  in  Paris 
and  its  suburbs,  and  in  the  provinces,  in  which  the  branch 
offices  are  housed. 


Chapter  XXIII 
Unofficial  Corporate  and  Private  Banks 

IMPOVERISHED  by  the  revolution  and  the  Napoleonic 
wars,  France  was  obliged  to  float  abroad  the  loans 
destined  to  indemnify  the  victorious  allies  of  a  century  ago. 
The  six  million  5  per  cent,  loan  of  18 16  was  placed  gradually 
at  Amsterdam,  at  an  average  rate  of  57  francs.  Hope,  of 
Antwerp,  and  Baring,  of  London,  financed  the  government 
of  the  restoration,  accepting  the  issues  of  securities  at  prices 
ranging  from  52.50  in  1816  to  85.55  in  1821.  In  this  latter 
year  Parisian  bankers,  Hottinguer,  Bagenault  and  Delessert, 
for  the  first  time  participated  in  a  syndicate  formed  by  Hope 
for  the  placing  of  a  loan  to  the  French  government.  In 
1822  the  first  French  loan  placed  within  the  country  was 
taken  by  the  Rothschilds,  who  in  that  year  established 
their  Paris  branch,  and,  until  the  reign  of  Napoleon  III, 
continued  to  be  the  successful  bidders  for  the  handling  of 
French  national  loans. 

Meanwhile  the  economic  resurrection  of  France  continued 
apace  until  the  great  crisis  in  1848,  when,  within  one  year, 
the  specie  reserves  of  the  Bank  of  France  fell  from  244  to 
71  millions.  In  order  to  relieve  the  money  stringency,  the 
government,  by  decree  of  March  7,  1848,  made  possible  the 
creation  of  bureaux  d'escompte,  or  discount  banks,  the 
capital  of  which  was  provided  one-third  in  cash  by  the 
founders,  one-third  by  city  securities,  and  one-third  by 
treasury  bonds.  The  profits  were  distributed  to  the  stock- 
holders only,  the  municipal  and  national  contributions  serving 
merely  as  guarantee.  The  business  of  these  institutions  was 
limited  to  the  discounting  of  commercial  paper.    Under  this 

[285 


286  ]  BANKERS  TRUST  COMPANY 

law  was  founded  the  Comptoir  d'Escompte,  which  in  1889 
was  reorganized  as  the  Comptoir  National  d'Escompte. 

Banking  18^2-1865 — 
The  Credit  Mohilier 

In  1852  the  brothers  Isaac  and  Emile  Pereire,  the  latter 
of  whom  had  been  a  founder  of  the  Comptoir,  launched  the 
Credit  Mobilier*,  an  institution  which  failed  in  1867,  was 
reorganized  in  1871,  continuing  a  precarious  existence  until 
1902,  when  it  was  finally  liquidated.  With  an  original  capital 
of  60  million  in  fully  paid  up  shares  of  500  francs,  doubled 
in  1866  and  modified  at  various  times  in  its  subsequent  career, 
the  Credit  Mobilier,  during  the  first  ten  years  of  its  existence, 
"dominated  continental  finance,  exercised  the  greatest  in- 
fluence on  modern  banks  in  general  and  contributed  to  the 
establishment,  throughout  Central  and  Western  Europe,  of 
analogous  institutions,  among  others  the  Allgemeine  Deutsche 
Creditanstalt  (General  German  Credit  Bank)  of  Leipzig,  the 
Bank  fiir  Handel  und  Industrie  (Commerce  and  Industry) 
at  Darmstadt,  and  the  Oesterreich  Creditanstalt  (Austrian 
Credit  Bank)  of  Vienna." 

The  founders  of  the  Credit  Mobilier  never  secured  per- 
mission to  issue  bank  notes  bearing  interest,  but  they  did 
carry  out  the  rest  of  their  project,  which  was,  in  the  main, 
to  promote  means  of  transportation  and  the  development  of 
industry  by  floating  railway  and  industrial  stocks,  not  only 
in  France,  but  in  other  countries,  notably  Austria.  The 
regular  banking  business  occupied  a  secondary  position  in 
the  aff"airs  of  the  Credit  Mobilier. 

This  institution  was  so  active  and  prosperous  in  its  early 

♦This  bank  must  not  be  confused  with  an  existing  bank  of  similar  name  and 
excellent  reputation. 


FRENCH  PUBLIC  FINANCE  [  287 

years  that,  coupled  with  the  initial  opposition  of  the  Roths- 
childs, there  was  soon  formed  a  rival  syndicate  of  bankers 
who  founded  the  Societe  Generale,  which  has  survived  as  one 
of  the  six  great  non-official  credit  institutions  of  France. 

The  failure  of  the  Credit  Mobilier  was  due  not  only  to 
the  efforts  of  its  rivals,  but  principally  to  its  excessive  invest- 
ments in  the  promotion  of  industrial  enterprises.  In  1862 
it  had  148  million  tied  up  in  such  investments,  against  a 
capital  stock  of  60  million.  When  trouble  came,  the  Bank 
of  France  alone  came  to  the  aid  of  the  Credit  Mobilier,  but 
exacted  the  resignation  of  the    Pereire    brothers. 

The  Credit  Mobilier  played  a  role  of  great  importance 
in  the  history  of  modern  banking:  first  among  stock  banks, 
it  engaged  in  the  commerce  of  securities  together  with  regular 
banking  business.  It  may  be  said  that,  until  the  foundation 
of  the  Credit  Mobilier,  the  great  bankers  such  as  Hope, 
Baring  and  Rothschild,  possessed  a  monopoly  of  the  flota- 
tion of  new  securities.  Their  large  fortunes  originated  in 
their  operations  of  loans  to  states.  These  operations  con- 
sisted simply  of  advances  in  specie:  there  was  no  question  of 
issuing  obligations  and  afterward  placing  them  on  the 
market.  On  the  contrary,  trading  in  securities,  in  the  widest 
sense  of  the  term,  was  the  raison  d^etre  of  the  Credit  Mobilier. 
The  capital  necessary  for  its  operations  had  been  too  large 
at  the  very  foundation  of  the  institution,  so  in  order  to 
utilize  this  capital,  the  bank  had  to  engage  in  personal 
speculation  on  the  bourse:  it  was  impossible  at  the  same  time 
to  form  a  clientele  and  to  issue  certificates  for  its  own  needs. 
The  ultimate  cause  of  its  collapse,  no  doubt,  lay  in  the 
inadequacy  of  the  means  with  which  it  had  undertaken  the 
financing  of  operations  which  for  lack  of  resources  it  later 
had  to  abandon. 


288  ]  BANKERS  TRUST  COMPANY 

In  little  more  than  a  quarter  of  a  century  from  the 
period  when  French  government  loans  could  not  be  floated 
in  France,  thanks  to  the  industrial  development  of  the 
country  and  the  thrift  of  its  people,  Paris  had  become  the 
world's  financial  market,  especially  for  the  issue  of  foreign 
state  securities.  Neymarck  estimates  that  from  1852  to 
1865,  20  billion  of  securities  were  issued  in  Paris,  more  than 
8  billion  of  this  amount  having  been  issued  between  1861 
and  1865.  About  5  billion  were  placed  in  railroads,  and  a 
like  amount  in  stock  companies  of  one  kind  or  another. 
Four  thousand  and  five  hundred  million  were  absorbed  by 
foreign  loans,  Rothschild  alone  having  handled  the  Italian 
loans  of  1861,  1863  and  1865,  totalling  1,839  million. 

Banking  1870-1882 

In  a  few  years  after  the  Franco-Prussian  war  and  the 
payment  of  the  indemnity,  the  French  had  again  become  so 
prosperous  that,  from  May  to  September,  1879,  the  specie 
reserves  of  the  Bank  of  France  exceeded  the  amount  of  the 
notes  in  circulation.  The  rate  of  discount  at  one  time  was 
only  2%.  The  period  from  1878  to  1882  was  marked  by  wild 
speculation,  the  most  conspicuous  example  being  that  of  the 
Societe  de  TUnion  Generale,  founded  in  1878,  on  lines 
similar  to  the  Credit  Mobilier,  with  a  capital  of  28  million 
at  the  start,  50  million  in  1879  and  100  million  in  1880, 
25%  paid  up.  In  1881,  the  president  asserted  that,  in  the 
three  years  of  the  company's  existence,  it  had  earned  36 
million  on  a  total  paid  up  capital  of  25  million.  On  November 
6,  1 88 1,  this  bank  held  on  deposit  132  million,  only  35 
million  of  which  was  payable  at  sight,  the  balance  in  three 
to  four  years.     Three  months  later  the  Societe  de  I'Union 


FRENCH  PUBLIC  FINANCE  [  289 

Generale,  the  shares  of  which,  at  500  francs,  had  been  quoted 
and  sold  at  more  than  5,000  francs,  suspended  payment  and 
was  declared  bankrupt.  This  failure  affected  the  bourse  to 
such  an  extent  that  the  estimated  loss  on  securities,  even  of 
the  best,  within  a  short  time  reached  4  billion  francs.  Suez 
Canal  shares  fell  in  one  month  from  3,500  to  2,000  francs, 
and  the  stock  of  the  Oesterreich  Laenderbank  from  1,175  ^^ 
500.  By.  1886,  all  the  banks  founded  between  1878  and  1882 
had  disappeared. 

"It  is  welV  says  Dr.  Kaufmann  from  whose  history  of 
banking  in  France  many  of  these  facts  have  been  taken,  "to 
bring  out  clearly  the  fact  that  the  excesses  of  this  period 
cannot  be  charged  exclusively  to  the  Union  Generale,  just 
as  it  is  impossible  to  place  all  the  blame  for  the  crises  of  the 
"Fifties"  on  the  Credit  Mobilier.  The  fault  belongs  to  the 
period  itself,  which  was  characterized  by  a  too  great  optimism, 
the  consequence  of  which  was  a  fever  of  speculation  such 
as  that  which  took  hold  of  Austria  and  Germany  five  years 
before.  The  Union  Generale,  besides,  had  the  superiority 
over  the  other  banks  of  the  time  in  that  it  had  founded  on  a 
solid  basis  a  number  of  enterprises  which  exist  to  this  day. 
*  *  *  What  led  to  its  ruin  was  its  senseless  speculation  in  its 
own  stock,  in  order  to  raise  its  value. 

"The  failure  of  the  Union  Generale  exercised  an  essential 
influence  on  the  development  of  French  banking.  It  was  be- 
cause of  this  that  the  directors  of  the  Credit  Lyonnais  trans- 
formed the  latter  to  a  simple  deposit  bank,  which  it  remains 
today.  The  other  great  deposit  banks  had  to  follow  its 
example,  in  order  not  to  be  reduced  to  a  secondary  position. 
The  present  organization  of  credit  and  banking  in  France  is 
a  consequence  of  this  'turning  around'  in  banking  policy." 


290  ]  BANKERS  TRUST  COMPANY 

Banking  Methods  of  Today 

In  other  words,  French  banks,  within  the  last  twenty- 
five  or  thirty  years,  have  largely,  if  not  entirely,  given  up 
speculating  on  the  bourse,  confining  their  operations  to  the 
ordinary  requirements  of  commerce.  In  general,  banking  meth- 
ods and  practice  in  France  occupy  an  intermediary  position 
between  the  specialization  characteristic  of  English  banks 
and  the  rather  broader  activities  of  German  banks.  There 
is,  however,  the  distinction  in  France  that  the  issuing  of 
notes  is  a  legal  monopoly  of  the  Bank  of  France;  the  trading 
in  mortgages  and  other  real  estate  and  agricultural  loans  is 
a  monopoly  in  fact,  though  since  1877  it  has  ceased  to  be 
so  in  law,  of  the  Credit  Foncier;  while  to-day,  as  explained 
in  a  later  paragraph,  quite  a  sharp  line  is  drawn  between 
what  are  known  as  financing  banks  and  the  deposit  and 
credit  banks. 

Organization 

There  is  no  special  banking  law  in  France.  The  joint- 
stock  banks  are  incorporated  under  the  general  laws  which 
regulate  the  organization  and  operations  of  all  joint  stock 
companies.  Every  corporation  must  have  at  least  seven 
shareholders.  There  is  no  minimum  capital  required,  but 
the  entire  capital  must  be  fully  subscribed  and  at  least 
one-quart€r  of  the  authorized  capital  must  be  actually 
paid  in.  Stockholders'  liability  is  limited  to  the  par  value 
of  the  shares  subscribed  for.  Charters  are  perpetual,  but 
duration  of  the  company  is  determined  by  a  vote  of  the 
shareholders.  All  incorporated  companies  are  required  to 
publish  annually  a  report  of  their  operations  and  condition. 
There  is  no  supervision  of  banks  by  the  public  authorities 
and  no  examination  of  the  accounts  or  consolidation  of  the 


FRENCH  PUBLIC  FINANCE  [  29 1 

Statements  rendered  annually.  It  follows  that  it  is  not 
possible  to  obtain  data  in  regard  to  the  banking  system  as  a 
whole,  although  quite  complete  figures  are  available  for 
many  of  the  individual  institutions,  especially  for  the  great 
credit  companies. 

The  commercial  banks  may  be  roughly  classified  into 
three  groups.  These  are  the  credit  companies,  the  business 
banks  and  the  international  banks.  Then  there  are  a  con^ 
siderable  number  of  private  or  unincorporated  banking- 
houses. 

The  Credit  Companies 

These  correspond  in  their  functions  and  operations  to  the 
national  and  state  banks  of  the  United  States  and  to  the 
joint-stock  banks  in  England.  The  business  which  these 
banks  transact  is  concisely  summarized  in  the  following 
extract  from  a  circular  issued  by  a  leading  Parisian  bankt 

"Deposit  accounts  opened  payable  on  demand  or  at  fixed  dates — 
current  accounts.  Certificates  of  deposit  issued.  Bills  taken  for  dis- 
count or  collection.  Payments  and  transfer  of  funds  effected  on  all 
parts  of  the  world.  Foreign  exchange  bought  and  sold.  Stock  ex- 
change orders  executed. 

"Coupons  and  matured  bonds  collected,  all  operations  in  connection 
with  securities  like  subscription  to  new  issues,  exchanges,  transfers,  etc., 
carefully  attended  to. 

"Commercial  credits  opened  in  France  and  abroad,  documents  col- 
lected, surety  bonds  and  similar  guaranties  furnished.  Commercial 
service  department  fully  equipped  for  handling  consignments,  ware- 
housing, selling,  etc.  of  merchandise. 

"Reception  rooms  for  bearers  of  letters  of  credit.  Correspondence 
received  and  held  for  account  of  travellers.  Payments  under  letters  of 
credit  effected  on  travellers'  checks  purchased.  Foreign  money  ex- 
changed.  Checks  issued.   Special  accounts  opened. 

"Jewels  and  securities  received  for  safekeeping.  Safe  deposit  boxes 
for  rent." 


292  J  BANKERS  TRUST  COMPANY 

Discount  operations  constitute  the  chief  activity  of  the 
French  banks.  They  have  an  incentive  to  the  development 
of  their  discount  operations  in  the  fact  that  the  Bank  of 
France  maintains  a  low  and  stable  rate  of  discount  and, 
further,  requires  a  third  signature  on  the  bills  presented  for 
discount.  The  non-official  banks  therefore  get  most  of  the 
paper  for  discount,  having  the  privilege  of  endorsing  it  for 
rediscount  at  the  Bank  of  France. 

Drafts  for  payment  in  France  are  usually  at  ninety  days. 
Payments  from  abroad  are  in  accordance  with  the  customs 
and  conditions  of  the  countries  concerned;  from  England  by 
cheque  payable  in  four  to  eight  weeks,  or  by  acceptance  at 
three  months;  from  countries  little  developed  economically, 
in  six  to  twelve  months. 

A  feature  of  the  foreign  discounts  is  the  discount  with 
assured  exchange  or  "boarding  out  of  commercial  paper" 
(pension  d'efFets),  by  which  French  banks  advance  funds  on 
first  class  foreign  securities  or  state  bonds,  to  be  redeemed 
at  the  same  rate  of  exchange  before  maturity,  on  payment  of 
the  amount  plus  the  discount.  These  transactions  are 
profitable  to  the  Paris  banks  when  the  rate  of  discount  is 
lower,  as  it  usually  was  before  the  war,  by  one-half  to  one- 
third  per  cent.,  in  Paris  than  in  any  foreign  market.  The 
higher  foreign  rate  of  discount  was  sufficient,  in  such  cases, 
to  cover  the  banks  as  well  as  the  borrowers  in  case  of  fluctua- 
tion in  exchange. 

A  special  form  of  loans  known  as  "reports"  is  made  against 
operations  on  the  bourse.  The  credit  companies  also  buy 
stocks  and  bonds  for  re-sale  to  their  customers,  while  a 
profitable  part  of  their  business  consists  of  the  issue  of  new 
loans  for  which  service  a  liberal  commission  is  charged,  the 
bank  itself  rarely  taking  any  risk. 


FRENCH  PUBLIC  FINANCE  [  293 

Deposits  fall  into  two  principal  categories,  those  repayable 
on  demand  and  those  repayable  at  fixed  future  dates.  Some 
of  these  latter  deposits  are  made  for  periods  as  long  as  one 
year,  eighteen  months  or  even  two  years.  A  form  of  deposits 
known  as  "current  accounts"  represents  the  balances  of 
business  people.  These  may  take  the  form  of  a  debit,  that 
is  the  client  is  given  a  line  of  credit,  usually  but  not  always 
against  security,  upon  which  he  may  draw  to  suit  his  con- 
venience. In  such  case  there  is  no  credit  entry  made  on  the 
books,  but  only  debit  entries  as  the  line  of  credit  is  used. 
As  a  rule  debit  current  accounts  are  only  opened  with 
merchants  and  manufacturers.  Such  credits  are  usually  given 
for  a  short  time  only  during  the  busy  season. 

On  the  other  hand,  the  rate  of  interest  charged  upon  loans 
and  upon  debit  current  accounts  is  always  higher  than  the 
Bank  of  France  rate.  This  is  possible,  even  though  the 
branches  of  the  Bank  of  France  are  everywhere  to  be  found, 
because,  in  other  respects,  the  terms  of  the  credit  companies 
are  somewhat  more  liberal  than  those  of  the  Bank  of  France. 
Then  the  latter  bank  pays  no  interest  on  credit  balances. 

The  Six  Great  Credit  Companies 

Commercial  banking  in  France  is  largely  controlled  by 
six  large  companies  having  head  offices  in  Paris  and  all  of 
them  having  branches  located  in  all  important  cities  and  in 
many  of  the  smaller  towns.  They  also  have  certain  branches, 
open  for  the  season  only,  located  at  places  of  summer  and 
winter  resort.  Then  there  are  quite  a  few  branches  in  coun- 
try towns  which  are  open  only  on  market  days. 

Following  is  a  consolidated  statement  for  these  six  banks 
as  of  December  3 1,  192 1.  For  comparative  purposes  we  give 
the  figures  for  December  31,  191 3,  except  for  the  Credit  Com- 


294 


BANKERS  TRUST  COMPANY 


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296  ]  BANKERS  TRUST  COMPANY 

mercial  for  which  we  were  compelled  to  use  a  statement  for 
December  31,  1914,  and  the  Banque  Nationale  de  Credit  for 
which  the  earliest  statement  of  which  we  could  avail  was 
for  December  31,  1915.  The  former  of  these  two  grew 
rapidly  during  the  war  on  account  of  several  mergers  with 
important  provincial  banks.  The  latter  began  business  in 
July,  191 3.  It  has  had  a  phenomenal  growth.  The  older 
banks  have  all  enjoyed  a  marked  increase  in  business  since 
1913.  The  statements  are  arranged  in  the  order  of  the  time 
in  which  the  banks  were  chartered. 

One  is  impressed  at  once  with  the  liquid  condition  in 
which  these  great  banks  appear  to  keep  their  affairs.  Not- 
withstanding their  activities  in  distributing  investment  securi- 
ties it  will  be  noted  that  they  invest  a  very  unimportant 
percentage  of  their  own  funds  in  such  securities.  Substan- 
tially all  their  assets  consist  of  commercial  paper  of  various 
kinds  which  is  constantly  maturing.  Undoubtedly  a  large 
percentage  of  this  paper  is  of  a  class  readily  rediscountable 
at  the  Bank  of  France.  The  business  in  acceptances  does 
not  appear  to  be  important.  It  would  be  of  interest  if  we 
could  know  the  exact  amount  held  of  treasury  bills  {bons  du 
tresor  and  bons  de  la  defense  nationale.)  The  investment  in 
buildings  and  equipment  is  most  conservative.  The  bulk 
of  the  deposits  is  in  the  form  known  as  *' Current  Accounts," 
then  come  the  checking  accounts.  Time  deposits  are  rela- 
tively small. 

The  reader  may  be  interested  to  turn  again  to  chapter  v, 
where  on  pages  39  to  45  the  statements  of  these  six  banks 
are  consolidated  with  the  Bank  of  France  statistics  and 
commented  upon.  The  dividends  paid  in  past  years  and 
the  valuation  put  upon  the  shares  of  the  banks  by  the  bourse 
are  shown  in  the  table  on  the  opposite  page. 


FRENCH  PUBLIC  FINANCE 


297 


THE  SIX  GREAT  CREDIT  BANKS 

Dividends  and  Quotations 

{Francs  per  share) 


Divi- 
dends 


Average 
Quota- 
tions 


1916 


Divi- 
dends 


Average 
Quota- 
tions 


1918 


Divi- 
dends 


Average 
Quota- 
tions 


Divi 
dends 


Average 
Quota- 
tions 


Credit  Industrie!  .  . 
Credit  Lyonnais .  .  . 
Societe  Generate  .  . 
Comptoir  d'Escompte 
Credit  Commercial  . 
Banque  Nationale  de 
Credit    .      .      .      . 


16.25 
65.00 
20.00 
40.00 
32.50 

new 


0713-50 
1. 661. 84 
c  816.50 
1,053.07 
668.16 

new 


13.10 
40.00 
10.00 
30.00 
30.00 

12.50 


624.10 

1,132.76 

a  490.00 

748.20 

580.57 

a  625.00 


IS. 78 
50.00 
15  00 
35  00 
35. 00 

IS. 00 


684.71 

I. 143. 14 

a  685.00 

794-42 

68S-83 

c  727.SO 


19.00 
70.00 
15.00 
50.00 
40.00 

42 -SO 


732.53 
1,603.10 
a  749.00 
1,079.5s 

798.16 

795-86 


a  Average  of  high  and  low. 

The  management  of  each  of  these  great  banks  is  vested 
in  a  board  of  administrators,  or  directors  as  we  v^ould  say. 
The  number  of  members  varies  from  a  minimum  of  eight  to 
a  maximum  of  fifteen.  Details  of  management  vary,  but  in 
a  general  way  they  are  similar.  In  addition  to  the  president 
and  two  vice-presidents  who  are  always  members  of  the 
board,  there  are  usually  two  or  three  other  members  who  are 
also  in  official  positions,  having  charge  of  special  departments 
of  the  bank's  activities.  Under  these  higher  officials  there  are 
many  of  lesser  importance.  The  number  of  clerks  is  an 
army  in  itself.  The  banking  houses  are  dignified,  commodious 
and  conveniently  arranged. 

The  Country  Credit  Banks 

In  addition  to  the  large  credit  companies  with  head- 
quarters at  Paris  there  are  several  good  sized  banks  in  the 
provinces  which,  with  their  branches,  serve  important  sec- 
tions, such  as  the  northern  industrial  departments  tributary 
to  Lille;  the  Rhone  valley,  north  and  south  from  Lyon; 


298  ]  BANKERS  TRUST  COMPANY 

Bordeaux  and  its  vicinity;  Nancy,  Marseille  and  one  or  two 
other  points. 

Financial  Banks 

There  are  banks  in  France  which  do  not  transact  a 
general  banking  business  but  use  their  own  resources  and 
those  of  groups  affiliated  with  them  in  the  creation  and 
development  of  industrial  and  financial  enterprises  at  home, 
in  the  colonies,  and  abroad.  They  participate  in  numerous 
promotions  of  industrial  companies  and  are  the  principal 
underwriters  of  new  issues  of  stocks  and  bonds,  consequently 
having  a  considerable  influence  on  the  Paris  Bourse.  Before 
the  war  they  played  an  important  part  in  the  floating  of 
foreign  securities  in  France,  and  have  through  this  type  of 
business  developed  a  great  many  international  connections. 
These  banks  have  been  quite  successful  in  their  operations 
and  have  been  a  powerful  influence  in  the  industrial  and 
commercial  advancement  of  the  nation.  The  Banque  de 
Paris  et  des  Pays-Bas  and  the  Banque  de  TUnion  Parisienne 
are  the  two  best  known  banks  of  this  type,  called  in  France 
"banques  d'aflPaires,"  which  may  be  roughly  translated  as 
banks  for  financing. 

Colonial  Banks  and  Banks  for  Foreign  Trade 

This  is  a  large  group  of  foreign  trade  banks  having 
ramifications  to  all  parts  of  the  world.  The  banks  composing 
this  group  are  in  many  cases  subsidiaries  of  the  great  credit  or 
financial  banks,  or  of  the  private  banking  houses.  Some  of 
these  banks  enjoy  special  rights,  such  as  the  note  issuing  privi- 
lege in  certain  of  the  French  colonies.  As  a  whole  their  opera- 
tions are  almost  entirely  limited  to  financing  trade  between 
France  and  her  colonies  and  with  foreign  countries.    While 


FRENCH  PUBLIC  FINANCE  [  299 

most  of  them  have  their  head  office  in   Paris,  some  also 
maintain  branches  at  the  seaports. 

The  Private  Banks 

There  is  a  notable  group  of  national  and  international 
private  bankers  the  members  of  which  are  engaged  principally 
in  conserving  their  private  fortunes  and  those  of  certain 
aristocratic  and  former  royal  families.  Aside  from  tradition, 
social  standing  and  wealth,  their  influence  on  French  finance 
is  exercised  principally  through  the  position  of  the  heads  of 
these  institutions  on  the  boards  of  the  Bank  of  France  and 
of  the  other  great  financial  and  industrial  concerns. 

There  are  still  a  considerable  number  of  private  bankers 
in  the  provincial  towns  but  the  tendency  is  for  them  to 
disappear.  The  country  private  bank  is  nearly  always  in  the 
hands  of  a  family,  passing  from  father  to  son.  Such  banks 
and  the  small  joint  stock  banks  will  usually  loan  on  less 
liquid  collateral  than  that  required  by  the  Bank  of  France 
and  the  great  credit  banks  and  thus,  from  their  intimate 
acquaintance  with  the  people,  can  render  banking  services 
which  could  not  be  safely  rendered  by  the  larger  banks. 

Banking  Ke serves 

French  banks  carry  very  moderate  cash  reserves.  They 
do  not  even  carry  large  balances  with  the  Bank  of  France, 
for  that  bank  allows  no  interest  on  deposits.  The  real  re- 
serve of  the  banking  system  of  France  is  the  note  issuing 
power  of  the  Bank  of  France,  coupled  with  its  willingness  at 
all  times  freely  to  discount  paper  which  conforms  to  its 
rules.  Every  credit  bank  carries  a  large  part  of  its  assets  in 
paper  suitable  for  re-discount  at  the  Bank  of  France  and  is 
thus  in  a  position,  at  a  moment's  notice,  to  meet  any  demands 


300  J  BANKERS  TRUST  COMPANY 

which  may  be  made  upon  it.  Because  of  this  arrangement 
which  has  worked  satisfactorily  in  many  crises,  as  well  as 
under  ordinary  conditions,  the  French  have  had  few,  if  any, 
"panics"  in  modern  times.  We  have  already  noted  how 
smoothly  the  banking  machinery  functioned  in  1914.  This 
was  only  a  notable  instance  of  the  way  the  Bank  of  France 
has  worked  in  with  the  other  banks  in  other  trying  situations 
of  which  little  was  known,  even  in  France,  outside  of  the 
inner  banking  circles. 

The  Cheque 

The  use  of  the  cheque  was  introduced  in  France  by  a 
law  of  May  23,  1865.  Until  the  great  war  was  well  under 
way  the  cheque  had  been  regarded  as  a  commercial  instru- 
ment rather  than  a  substitute  for  currency.  The  laws  in 
regard  to  the  cheque  were  such  that  it  was  regarded  as  a 
dangerous  form  of  paper  for  common  use.  It  followed  that 
practically  all  payments  were  made  by  the  actual  exchange  of 
specie  or  bank  notes. 

During  the  war,  with  a  view  to  conserving  the  use  of 
money,  efforts  were  made  to  simplify  and  popularize  the  use  of 
the  cheque.    These  efforts  have  been  measurably  successful. 

Department  of  Financial  Studies 

In  many  American  banks  what  have  come  to  be  known 
as  statistical  departments  are  recognized  to  be  essential  to 
an  intelligent  conduct  of  the  business.  Several  of  the  French 
banks  have  similar  departments.  Following  is  a  description 
of  one  which  has  functioned  since  1864. 

This  department  is  divided  into  twelve  sections  which  are 
as  follows: 


FRENCH  PUBLIC  FINANCE  [  3OI 

1.  Archives:  Here  are  collected,  classified,  catalogued 
and  filed  the  books,  periodicals  and  documents  upon  which 
the  research  work  is  based  and  which  it  is  desired  to  preserve 
for  reference. 

2.  Bulletins:  This  section  analyzes  the  current  news  and 
edits  and  publishes  a  daily  bulletin  for  the  iise  of  the  various 
other  departments  of  the  bank.  Over  one  hundred  news- 
papers and  magazines  are  received  in  which  all  the  interesting 
articles  are  blue-pencilled  and  afterwards  copied  and  placed 
in  special  folders. 

3.  Registration:  This  section  maintains  a  register  of  all 
financial  and  economic  events. 

4.  Quotations:  Here  are  received  and  classified  quotations 
from  the  principal  stock  exchanges  of  the  world  and  tables 
are  prepared  giving  the  trend  of  prices. 

5  to  9.  These  sections  prepare  studies  upon  public  finance; 
banking;  industrial  and  mining  companies;  railroads,  tram- 
ways and  other  means  of  transportation;  and  upon  general 
commercial  topics. 

10.  Actuarial:  This  section  prepares  sinking  fund  tables, 
calculations  as  to  prices  at  which  securities  shall  be  issued 
and  other  work  of  this  character. 

11.  Correspondence:  This  section  is  charged  with  the 
correspondence  of  the  department  with  the  agencies  of  the 
bank  and  especially  with  clients. 

12.  Copying:  This  section  prepares  for  use  the  studies 
made  in  the  other  departments. 

Before  the  war  this  company  sent  out  missions  from  the 
Department  of  Financial  Studies.  For  instance  there  were 
permanent   missions    at    Berlin,    Vienna    and    New   York. 


302  ]  BANKERS  TRUST  COMPANY 

Temporal  missions,  chiefly  composed  of  engineers  and  other 
technical  men,  were  also  frequently  sent  out,  as  for  instance 
four  men  spent  almost  three  years  in  China  and  studied 
practically  every  phase  of  that  country's  economic,  financial 
and  industrial  problems. 

One  of  the  principles  of  the  department  is  to  obtain 
facts  and  figures  as  far  as  possible  from  official  sources, 
such  for  instance  as  financial  reports  of  governments,  reports 
from  the  leading  banks  throughout  the  world  and  reports  of 
railroad,  industrial  and  other  corporations,  but  when  such 
documents  are  not  available  secondary  sources,  such  as  news- 
papers, magazines  and  circulars  are  used.  It  is  interesting  to 
note  that  the  filing  department  has  about  60,000  different 
files  on  various  companies  and  subjects. 

The  staflF  of  the  entire  Department  of  Financial  Studies 
amounts  to  about  120  employees  who  are  to  a  great  extent 
recruited  from  the  ficole  Polytechnique,  ficole  des  Mines, 
Ecole  Centrale,  Ecole  des  Hautes  Etudes  Commerciales,  and 
Ecole  des  Sciences  Politiques  and  who  have  won  prizes  in 
those  institutions. 

Branch  Banks 

The  managers  of  branch  banks  are  appointed  by  the 
Council  of  Administration  of  the  home  bank  in  Paris.  Some- 
times two  or  three  offices  are  grouped  under  the  direction  of  a 
principal  branch.  The  employees  are  usually  taken  from  some 
other  place  than  that  in  which  the  branch  is  located.  There  is 
a  carefully  devised  system  of  audit  for  the  accounts  of  the 
branches.  In  fact  some  banks  have  two  sets  of  auditors 
working  independently  of  each  other  who  visit  the  branches 
without  warning. 


FRENCH  PUBLIC  FINANCE  [  303 

Taxation 

Banking  institutions  are  subject  to  the  same  taxes  as  are 
other  corporations.  There  is  also  a  tax  on  dividends  which 
is  deducted  at  the  time  the  dividend  is  paid  and  turned 
over  in  a  lump  sum  to  the  government. 

The  Clearing  House 

There  is  but  one  clearing  house  in  France,  that  of  Paris. 
In  was  founded  in  1872  and  until  191 7  had  but  eleven 
members.  Its  operations  were  suspended  from  August  2, 
1914,  to  July  3,  1916. 

In  191 7  the  old  clearing  house  was  merged  with  a  new 
one  which  had  been  organized,  the  number  of  members  was 
increased  to  about  40  and  the  field  of  operations  widened. 
The  total  clearings  in  1872  amounted  to  1,603  rnillion  francs; 
increasing  to  36,749  million  in  1913  and  to  167,159  million  in 
1921.  The  business  cleared  in  proportion  to  the  total  volume 
of  business  done  in  France  is  much  smaller  than  is  the  case 
in  the  United  Kingdom  or  in  the  United  States.  This  is  due 
to  three  principal  reasons.  Perhaps  the  most  important  of 
these  is  the  fact  that  so  much  of  the  daily  transactions  of 
trade  in  France  is  done  on  a  cash  basis.  Then  there  is  the 
fact  that  the  banking  business  of  the  country  is  concentrated 
in  a  small  group  of  banks  which  are  able  to  settle  the  larger 
part  of  their  transactions  through  their  own  offices,  while  all 
bourse  operations,  both  on  the  Paris  bourse  and  the  country 
bourses,  are  liquidated  by  means  of  a  stock  exchange  clearing 
house  conducted  by  the  Paris  bourse.  Finally,  and  most 
important  of  all  is  the  "virements"  service  of  the  Bank  of 
France  which  amounted  in  1921  to  1,199,281  million  francs, 
seven  times  the  volume  of  business  done  by  the  clearing 
house. 


Chapter  XXIV 

Credit  Foncier  de  France 
(Mortgage  Bank  of  France) 

T\  TORE  than  a  century  ago  France  first  recognized  the 
-*-^-*-  need  of  an  institution  in  the  nature  of  a  national 
mortgage  loan  bank.  As  far  back  as  1818  such  a  bank  was 
founded,  but  the  complicated  mortgage  laws  of  that  time 
made  its  successful  continuance  impossible.  In  1826  Casimir 
Perier  tried  to  secure  modification  of  the  burdensome  legal 
restrictions.  But  it  was  not  until  1852  that  such  modification 
was  obtained  largely  through  the  efforts  of  M.  Wolowski,  a 
distinguished  Polish  economist  and  a  naturalized  citizen  of 
France,  who  in  that  year  became  the  head  of  three  mortgage 
banks — one  at  Paris,  one  at  Nevers,  and  one  at  Marseille. 
A  little  later,  these  three  banks  were  amalgamated  and  be- 
came the  present  great  mortgage  loan  bank  which  has  ever 
since  assumed  an  increasingly  important  place  in  France's 
financial  structure  as  the  Credit  Foncier  de  France. 

Business  and  Principle  Upon  Which  it  is  Based 

The  bank  is  a  joint  stock  company  closely  reliated  to  the 
government  by  teason  of  its  public  character  and  the  privi- 
leges granted  to  it. 

In  general  the  Credit  Foncier  may  be  described  as  per- 
forming important  functions  in  the  national  development  as 
they  relate  to  real  estate,  building,  agriculture,  and  public 
works,  functions  that  are  similar  to  those  performed  by  the 
Bank  of  France  in  the  development  of  national  commerce 
and  industry. 

304] 


FRENCH  PUBLIC  FINANCE  [  305 

The  principle  on  which  the  business  of  the  Credit  Foncier 
is  based  is  that  capital  invested  in  land  loans  can  be  reim- 
bursed but  slowly.  It  is  necessary,  therefore,  to  make  loans 
for  a  long  term,  and  tie  up  capital  for  a  certain  time,  and 
assure  its  partial  return  each  year  by  a  regular  sinking  fund. 

It  is  also  important  to  have  new  capital  available  when 
it  is  needed.  The  Credit  Foncier,  in  order  to  procure  this 
capital,  issues  bonds  which  it  sells  to  investors. 

The  Credit  Foncier  uses  as  an  amortizement  for  its  bor- 
rowings the  annuities  that  it  receives  from  its  debtors.  This 
amortizement  is  so  planned  that  there  is  a  rotation  between 
the  amortizement,  the  payment  of  annuities,  and  fresh 
borrowings. 

The  Credit  Foncier  was  founded  at  the  time  of  an  agri- 
cultural crisis  and  for  the  purpose  of  remedying  that  crisis. 
Nevertheless  it  is  not  to  agriculture  that  it  has  rendered  the 
greatest  services.  Originally  chartered  to  make  loans  in 
France  to  be  secured  by  mortgage  upon  real  estate,  in  1858 
permission  was  given  the  bank  to  loan  for  drainage.  In 
i860  it  was  authorized  to  make  loans  to  towns  and  depart- 
ments for  public  works  and  improvements  and  it  was  em- 
powered to  extend  its  operations  to  Algeria.  It  was  also 
empowered  at  about  this  time  to  make  advances  in  the  form 
of  discounts  to  the  Sous-Comptoir  des  Entrepreneurs,  3.  con- 
tractor's bank  which  lends  on  mortgage  to  builders  after 
their  work  has  reached  a  certain  stage,  and  while  in  progress. 
When  the  buildings  are  completed  the  bills  discounted  by 
the  Sous-Comptoir,  and  rediscounted  by  the  Credit  Foncier, 
are  cancelled  by  a  regular  mortgage. 

Out  of  a  total  of  loans  granted  from  1853  to  1914  amount- 
ing to  11,608,789,000  francs  it  had  loaned  to  farmers  only 
1,403,942,000  francs   against   5,425,880,000   francs  to   city 


306  ]  BANKERS  TRUST  COMPANY 

property  holders,  20,107,000  on  mixed  security  and  4,758,- 
859,000  francs  to  municipalities  and  other  administrative 
bodies.  Thus,  before  the  war,  the  Credit  Foncier  was  rather  a 
city  borrowing  institution  and  a  syndicate  of  provincial  lenders. 

Although  the  bank's  legal  monopoly  expired  in  1876, 
yet  as  a  practical  matter  and  as  a  result  of  the  admirable 
way  in  which  its  business  has  been  developed  and  is  managed, 
it  still  has  in  fact  a  monopoly  of  the  mortgage  business. 

The  bank  grants  two  kinds  of  loans,  mortgage  loans  and 
loans  to  municipalities. 

Mortgage  Loans 

The  Credit  Foncier  can  only  loan  upon  a  first  mortgage. 
Mortgages  upon  houses  or  rural  property  may  not  exceed 
one  half  the  value  of  the  property.  In  the  case  of  planted 
lands,  such  as  woods  and  vineyards,  only  one  third  of  the 
value  is  loaned.  In  any  case  the  annuity  which  the  borrower 
pledges  himself  to  pay  cannot  exceed  the  total  revenue  of 
the  property. 

Requests  for  loans  must  be  accompanied  by  all  particulars 
needed  to  enable  the  company  to  determine  the  sufficiency 
of  the  guarantees  offered.  If  the  management  deems  it  advis- 
able, it  has  the  property  appraised  by  its  inspectors.  The 
inspectors'  reports  are  examined  by  a  commission  and  sub- 
mitted to  the  council  of  administration  which  alone  has 
authority  to  decide  upon  the  amount  to  be  loaned. 

The  Credit  Foncier  can  accept  as  security  for  a  loan  only 
property  which  has  a  durable  and  certain  revenue.  It  is 
forbidden  absolutely  to  loan  upon  theatres,  race  tracks,  un- 
divided property,  that  is  to  say  property  which  belongs  to 
several  persons,  and  property  title  to  which  and  revenue 
from  which  do  not  belong  to  the  same  person. 


FRENCH  PUBLIC  FINANCE  [  307 

The  period  for  which  mortgage  loans  are  made  usually 
is  75  years.  In  the  case  of  property  likely  to  depreciate 
rapidly,  loans  usually  are  not  made  for  more  than  30  years. 
In  view  of  repayments  by  borrowers  the  average  length  of 
loans  does  not  exceed  15  to  20  years.  The  borrower  pays  his 
debt  by  means  of  annuities.  The  mechanism  of  amortization 
depends  upon  progressive  accumulation  of  compound  interest. 
The  annuity  due  is  the  same  throughout  the  duration  of  the 
loan.  But  it  comprises  boch  interest  and  amortization.  Dur- 
ing the  first  years  the  capital  to  be  repaid  being  still  only 
a  small  part  of  the  whole,  the  greater  part  of  the  annuity 
goes  towards  interest  and  the  amortization  is  small.  But 
little  by  little  the  amortization  reduces  the  capital  remaining 
due  and  consequently  in  the  latter  years  of  the  loan  the 
annuity  largely  goes  toward  paying  the  amortization.  The 
rate  of  interest  charged  to  borrowers  may  not  exceed  by 
more  than  0.60  per  cent,  the  rate  of  the  return  (interest, 
lottery  fees,  and  other  charges)  from  the  Company's  bonds 
which  are  in  circulation  at  the  time  when  the  rate  of  interest 
on  the  loans  is  fixed.  The  rate  of  interest  in  July,  1914,  on 
the  mortgage  loans  was  4.85  per  cent.,  without  commission. 
The  annual  payment  (interest  and  sinking  fund)  was  12.74 
per  cent,  for  a  loan  to  be  redeemed  in  ten  years;  7.87  per 
cent,  in  twenty  years;  5.33  per  cent,  in  fifty  years,  and  4.99 
per  cent,  in  seventy-five  years.  During  the  great  war  it 
became  necessary  to  raise  the  rate  of  interest  on  mortgage 
loans  to  7.15  per  cent.   The  rate  in  1922  is  SJ4  per  cent. 

Nearly  three  quarters  of  the  mortgage  loans  of  the 
Credit  Foncier  are  secured  by  liens  upon  urban  property, 
particularly  in  Paris  and  the  larger  cities.  The  average  value 
of  these  loans  has  fluctuated  considerably  in  the  past  few 
years,  ranging  from  31.576  francs  in  1913  to  69,144  in  1918, 


308  ]  BANKERS  TRUST  COMPANY 

while  out  of  about  4,400  applications  for  mortgage  loans 
received  during  1921,  the  Credit  Foncier  granted  3,926  having 
an  average  value  of  34,325  francs. 

Loans  to  Municipalities  {Communal  Loans) 

These  comprise  loans,  with  or  without  mortgage,  to 
departments,  to  communes  (towns  and  cities),  to  associa- 
tions of  farmers,  to  chambers  of  commerce  and  to  hospitals 
and  other  benevolent  establishments. 

The  direct  issue  of  bonds  by  French  municipalities  is 
the  exception.  As  a  rule  they  borrow  from  the  Credit 
Foncier.  The  security  for  the  communal  loans  is  the 
revenue  derived  by  the  department  or  commune  regularly 
voted  and  approved  by  the  proper  authorities.  A  provision 
of  the  French  law  empowers  the  government  to  intervene 
in  case  the  taxes  voted  are  insufficient  to  produce  revenue 
for  the  payment  of  these  bonds.  It  has  never  been  neces- 
sary to  apply  this  provision  as  no  commune  has  ever  be- 
come bankrupt.  During  1921  the  Credit  Foncier  granted 
3,842  communal  loans  having  a  total  value  of  1,210,218,000 
francs. 

Bonds  of  the  Credit  Foncier 

To  procure  funds  for  the  loans  granted  by  it,  Credit 
Foncier  issues  bonds  of  which  some  series  are  payable  by 
drawings  by  lot.  The  total  amount  outstanding  may  not 
exceed  fifty  times  the  par  value  of  the  capital  stock. 

An  idea  of  the  extent  of  the  operations  performed  by  the 
Credit  Foncier  may  be  gained  from  the  statement  of  the 
bank  for  the  fiscal  year  ended  December  31st,  1921,  at  which 
time  there  were  real  estate  bonds  outstanding  amounting  to 
3,085,937,000  francs  and  communal  bonds,  that  is  bonds 


FRENCH  PUBLIC  FINANCE  [  309 

representing  loans  to  departments,  towns,  or  villages,  for 
3,730,351,000  francs,  making  a  total  of  the  bonds  of  the 
bank  outstanding  at  that  time  of  6,816,288,000  francs. 

The  credit  standing  of  the  bank  and  the  popularity  of 
its  bonds  are  indicated  by  the  fact  that  the  issues  which  are 
publicly  offered  are  quickly  over-subscribed.  The  last  three 
issues  made  in  1917,  1920,  and  1921  were  for  an  aggregate 
of  more  than  2,800  million  francs. 

The  bonds  of  the  Credit  Foncier  are  accorded  by  law 
certain  special  advantages.  They  may  be  issued  for  the 
investment  of  the  funds  of  minors  and  incompetents,  they 
are  non-attachable.  They  also  enjoy  a  specially  reduced 
stamp  rate. 

There  are  two  kinds  of  bonds  as  there  are  two  kinds  of 
loans: 

Bonds  Against  Property:  These  are  known  as  obligations 
foncieres.  They  are  bonds  secured  by  mortgages  and  form 
the  counter  part  of  mortgage  loans.  Their  total  cannot  be 
greater  than  the  total  of  the  sums  due  the  Credit  Foncier 
on  mortgage.  They  have  no  direct  lien  upon  each  of  the 
pieces  of  property  mortgaged;  they  are  only  guaranteed  by 
the  total  of  the  mortgages  held  by  the  company,  which  acts 
as  intermediary  between  the  borrowers  and  the  holders  of 
the  bonds. 

Bonds  Against  Municipal  Loans:  These  are  known  as 
obligations  communales.  They  are  issued  against  the  loans  to 
departments,  towns,  cities  and  public  establishments.  How- 
ever, there  is  no  direct  pledge  of  these  securities. 

The  bonds  issued  by  the  Credit  Foncier,  against  its  com- 
munal loans,  have  many  of  them  the  lottery  feature  attached. 
The  Credit  Foncier  has  the  monopoly  of  this  privilege 
with  the  exception  that  certain  large  cities,  particularly  Paris, 


3  lO  ]  BANKERS  TRUST  COMPANY 

may  obtain  permission  from  the  government  to  attach  lot- 
teries to  their  loans.  In  such  cases  a  special  law  must  be 
passed  giving  this  privilege.  An  exception  must  also  be 
be  noted  in  favor  of  the  Credit  National  described  on  page  90. 

Secondary  Operations 

Besides  these  two  special  classes  of  operations  (loans  on 
mortgage  and  to  the  communities  and  the  issue  of  mortgage 
and  communal  bonds),  the  company  does  ordinary  banking 
operations  under  certain  restrictions.  It  receives  deposits  of 
funds  on  open  account  and  deposits  of  securities,  executes 
orders  on  the  bourse,  grants  advances  on  securities  and  opens 
accounts  on  advances,  and  also  offers  to  the  public  the  use 
of  safe  deposit  vaults. 

The  statutes  of  the  Credit  Foncier  limit  the  amount  of 
deposits  to  be  taken  to  the  amount  of  its  capital  and  also 
require  that  at  least  a  quarter  of  these  deposits  must  be  issued 
in  payment  in  the  form  of  accounts  current  to  the  national 
treasury,  or  in  deposits  of  securities  approved  by  the  minister 
of  finance.  Three-quarters  of  the  deposits  must  be  invested 
in: 

(i)  French  rentes,  Treasury  bonds,  short  term  loans  against 
bonds  of  the  Credit  Foncier  or  in  other  securities  accepted 
by  the  Bank  of  France  as  guarantee  for  cash  advances,  not 
to  exceed  90  days;  or 

(2)  In  bills  of  exchange  or  commercial  paper  which  must  not 
run  longer  than  three  months  and  must  bear  at  least  two 
signatures. 

Capital^  Dividends,  Quotations 

The  capital  stock  of  the  Credit  Foncier  was  originally 
2,500,000  francs  which  has  been  increased  by  successive  stages 


FRENCH  PUBLIC  FINANCE  [  3  II 

to  its  present  amount — 300,000,000  francs.  The  stock  repre- 
sents 600,000  registered  shares  of  500  francs  each.  These 
shares  which  are  listed  on  the  bourse,  are  held  by  more  than 
47,000  persons.  The  special  reserves  and  provisions  con- 
stituted by  the  Credit  Foncier  reached  a  total  of  522  million 
francs  on  December  31,  1921. 

Although  a  private  company,  the  Credit  Foncier  is  es- 
sentially a  public  institution.  Out  of  the  profits  are  taken 
annually: 

(i)  A  sum  equal  to  5%  of  the  nominal  capital  to  be  distributed 
to  shareholders. 

(2)  A  sum  of  not  less  than  5%  nor  exceeding  20%  is  credited  to 
the  compulsory  reserve  fund  until  such  time  as  this  fund 
will  have  attained  a  sum  equal  to  half  the  capital.  The 
general  assembly  may  decree  that  additional  reserves  shall 
be  made. 

(3)  The  remaining  surplus  is  distributed  in  the  form  of  divi- 
dends among  all  the  shareholders.  The  dividend  paid  in 
1913  was  17,924,000  francs,  in  1920,  21,000,000  francs  and 
in  192 1,  27,000,000  francs. 

The  dividend  record  since  1852  may  be  found  on  pages 

338-340- 

Bourse  quotations  for  Credit  Foncier  stock  from  1856 
and  for  its  bonds  from  1879  may  be  found  on  pages  339 
and  340. 

The  company  pays  taxes  the  same  as  any  other 
corporation. 

Administration 

The  admin  strative  system  adopted  upon  the  organiza- 
tion of  the  company  has  since  remained  practically  un- 
changed.   This  is  substantially  the  same  as  that  under  which 


312]  BANKERS  TRUST  COMPANY 

the  Bank  of  France  operates.  The  stockholders,  or  rather 
those  of  the  200  largest  holders  present  at  the  annual  meet- 
ing in  April,  elect  the  directors  and  three  censors.  The 
President  of  the  Republic  appoints  the  governor  and  two 
sub-governors  who  hold  office  for  an  indefinite  term. 

The  governor  must  own  free  of  lien  200  non-transferable 
shares  of  the  company's  stock.  He  presides  at  meetings  of 
the  shareholders  and  of  the  directors.  He  has  general  super- 
vision of  the  affairs  of  the  company  and  an  absolute  veto 
power  upon  the  acts  of  the  directors.  The  two  sub-governors, 
likewise  appointed  by  the  President  of  the  Republic,  must 
each  own  100  shares  of  stock,  non-transferable  during  their 
terms  of  office.  They  assist  the  governor  and,  in  case  of  his 
disability,  act  for  him. 

The  directors  consist  of  a  minimum  of  20  and  a  maximum 
of  23,  of  whom  three  must  be  chosen  from  among  the 
treasurers-general  of  the  national  treasury  (see  page  221). 
The  administrative  board  includes  the  governor,  the  sub- 
governors,  the  directors  and  the  three  censors. 

Subject  to  the  veto  power  of  the  governor,  the  board  has 
general  charge  of  the  affairs  of  the  bank. 

The  censors  have  no  voice  in  the  management.  They  are 
in  effect  the  stockholders'  auditors  and  present  an  inde- 
pendent report  to  the  annual  general  assembly  of  stockholders. 

There  is  a  secretary  general,  appointed  by  the  governor 
who  appoints  and  dismisses  all  other  officials. 

The  company  has  no  independent  agencies  as  all  of  its 
financial  operations  throughout  the  provinces  are  trans- 
acted through  the  nation's  treasurers-general.  However, 
there  are  "jd  representatives  distributed  throughout  the  90 
departments  of  France  who  examine  titles  and  handle  all 
negotiations  in  connection  with  loans.    The  borrower  on  real 


FRENCH  PUBLIC  FINANCE  [  313 

estate  generally  does  not  deal  directly  with  the  representative. 
He  applies  to  his  notary  when  he  wants  a  loan  and  the  notary 
deals  with  the  representative  of  the  Credit  Fonder. 

The  Home  of  Credit  Fonder 

The  office  of  the  Credit  Foncier  is  in  Paris,  19  Rue  des 
Capucines. 

The  buildings  cover  about  140,000  square  feet  of  ground. 
There  are  vaults  and  subterranean  corridors  which  extend 
from  end  to  end  of  these  buildings.  These  vaults,  some  of 
them,  have  been  there  from  the  time  of  the  existence  of  the 
Capucines  Monastery,  which  covered  part  of  this  same  site. 

The  main  architectural  feature  of  the  Credit  Foncier  is 
the  beautiful  new  Grand  Hall  in  gray  and  white  marble  and 
bronze,  the  entrance  to  which  is  in  rue  Cambon.  At  the 
wickets  surrounding  this  hall  are  handled  all  matters  concern- 
ing securities.  There  are  other  public  halls  which  bear  the 
following  titles :  Hall  of  Drawings,  Hall  of  Current  Accounts, 
Grand  Hall  of  the  Funds.  In  the  Hall  of  Current  Accounts  are 
handled  the  chief  banking  operations  of  the  Credit  Foncier, 
the  deposit  accounts  and  the  cashing  of  checks  drawn  against 
such  accounts.  In  the  Grand  Hall  of  the  Funds  are  handled 
subscriptions  and  coupon  payments. 

Behind  the  buildings  are  two  large  and  very  handsome 
formal  gardens.  One  is  called  the  Court  of  the  Governor 
and  is  reserved  for  his  use,  and  the  other  one  is  reserved  for 
the  use  of  the  employees,  where  they  may  rest  and  prome- 
nade during  the  lunch  hour. 

On  the  following  page  may  be  found  the  statement  of 
the  bank  for  the  fiscal  year  ended  December  31,  192 1. 


314] 


BANKERS  TRUST  COMPANY 


STATEMENT  CREDIT  FONCIER 

December  31,  1 921 

(In  francs — 00,000  omitted) 


Assets  Francs 

Cash  on  hand  and  in  bank 7,1 

Securities 1,016,5 

French  Treasury 35,3 

Advances  against  securities 2 1 ,9 

Correspondents 7,7 

Banque  Hypothecaire  de  France  in  liquidation 15,8 

Loans: 

Mortgage  Loans        1  7  i6d.  «? 

Loans  to  communes  / ' '     '+'^ 

Loans  made  with  funds  applicable  to  capital  stock 

and  reserve 76,5 

Annuities  due .         185,1  7,426,1 

Real  estate  acquired  by  means  of  expropriation 1,0 

Head  Office  Building 23,1 

Miscellaneous 43,4 

Earned  interest 100,6 

Administration  expenses 19,4 

8,717,9 
Liabilities 

Capital 300,0 

Legal  reserve 22,2 

Reserve  for  amortization  of  loans 362,6 

Reserves  and  miscellaneous  provisions I37,5 

Deposits  and  current  accounts 121,3 

Correspondents 54,3 

Sous-Comptoir  des  Entrepreneurs 3,7 

Deferred  payments 569,9 

Real  estate  obligations 3,085,9 

Communal  obligations 3,730,4  6,816,3 

Lottery  bonds  in  circulation 48,2 

Reimbursed  bonds  and  interests  repayable 55,7 

Annuities  encashed  in  advance 6,4 

Miscellaneous 60,4 

Earned  interest  not  due 112,0 

Profit  and  Loss  account 47,4 

8,717,9 


Chapter  XXV 
Agricultural  and  Popular  Banks 

IN  this  description  of  the  methods  of  providing  agricultural 
credit  in  France,  we  have  followed  closely  the  excellent 
treatise  on  European  cooperative  credit  systems  published 
in  191 2  by  the  International  Institute  of  Agriculture  at 
Rome,  also  the  data  published  by  the  United  States  National 
Monetary  Commission,  especially  the  article  written  by 
M.  Andre  Liesse,  the  present  distinguished  editor-in-chief  of 
L'Economiste  Francais. 

The  Principle  Underlying  Agricultural  Credit 

The  main  principle  underlying  all  forms  of  cooperative 
credit  is  that  if  a  group  of  persons  combine  to  furnish  a 
collective  guarantee  they  can  obtain  money  at  lower  rates  of 
interest  on  the  security  of  that  guarantee  than  they  could 
obtain  it  individually. 

The  collective  guarantee  may  be  that  of  real  property. 
A  number  of  landowners  may  obtain  capital  on  the  security 
of  a  collective  mortgage  on  their  lands.  This  is  the  basis  of 
German  Landschaften,  one  of  the  oldest  forms  of  cooperative 
credit  institutions.  Or,  again,  the  collective  guarantee  may 
be  a  personal  one.  A  number  of  persons  may  obtain  capital 
by  making  themselves  jointly  responsible  for  its  repayment. 
Such  liability  may  be  unlimited  or  limited. 

Upon  such  guarantees  capital  may  be  obtained  in  a 
variety  of  ways. 

Having  obtained  the  capital,  the  group  of  persons  must 
be  able  to  lend  it  to  one  another  at  a  rate  of  interest  only 
slightly  in  excess  of  the  rate  which  they  pay  collectively. 

[31S 


3  l6  ]  BANKERS  TRUST  COMPANY 

This  requires  two  conditions:  (i)  that  the  expenses  of  man- 
agement shall  be  small  in  proportion  to  the  business  done, 
and  (2)  that  the  risk  of  loss  shall  be  reduced  to  a  minimum. 

To  reduce  the  risk  of  loans  to  members,  many  safeguards 
have  been  devised  which  are  adopted  to  varying  extents  in 
the  different  systems. 

Where  the  members  are  landowners  and  can  give  mort- 
gages on  their  property,  it  is  only  necessary  to  ensure  that 
the  amount  of  the  loan  shall  be  fully  secured  by  the  mortgage, 
allowing  for  any  possible  depreciation  in  the  value  of  the 
property.  Loans  on  mortgage  are,  however,  ,an  incon- 
venient form  of  credit,  where  capital  is  only  required  for  a 
comparatively  short  period.  The  following  are  the  principal 
safeguards  for  loans  given  on  personal  security: 

(i)  That  loans  are  only  made  to  members  of  the  group 
and  that  only  persons  known  to  be  trustworthy  are  admitted; 

(2)  That  membership  is  confined  to  persons  residing 
within  a  small  district  and  that,  therefore,  the  members  are 
personally  known  to  one  another; 

(3)  That  the  members  being  mutually  responsible,  it  will 
be  to  the  interest  of  all  members  to  keep  an  eye  upon  a 
borrower  and  to  see  that  he  makes  proper  use  of  the  money 
lent  to  him; 

(4)  That,  in  like  manner,  it  is  to  the  interest  of  all  mem- 
bers to  help  a  member  when  he  is  in  difficulties; 

(5)  That  the  borrower  is  required  to  find  sureties  or  give 
other  collateral  security  for  the  repayment  of  the  loan; 

(6)  That  the  borrower  binds  himself  to  apply  his  loan 
to  a  specific  purpose  which  will  bring  in  a  monetary  return 
sufficient  to  enable  him  to  repay  the  sum  borrowed,  to  pay 
the  interest  charged,  and  to  leave  a  profit  for  himself. 

It  is  not  to  be  supposed  that  the  whole  of  these  safe- 


FRENCH  PUBLIC  FINANCE  [  3  17 

guards  are  adopted  in  all  cases.  Loans,  for  example,  are 
sometimes  given  on  the  borrower's  mere  note-of-hand,  with- 
out any  collateral  security.  The  determination  of  the  use  to 
which  a  loan  is  to  be  put  is  most  important  where  the  bor- 
rowers are  small  cultivators  unaccustomed  to  commercial 
methods,  and  is  usually  relaxed  as  their  economic  education 
becomes  more  advanced. 

Cooperative  Agricultural  Credit  in  France 

The  first  experiments  in  agricultural  credit  in  France  date 
back  to  the  middle  of  the  past  century,  but  its  real  develop- 
ment only  begins  after  the  promulgation  in  1884  of  the  Law 
on  Professional  Syndicates. 

In  1894  the  law  which  instituted  local  agricultural  mutual 
credit  banks  gave  a  powerful  impetus  to  agricultural  credit, 
and  in  1899  the  Law  on  Regional  Banks,  which  authorized 
the  giving  of  state  aid,  consolidated  agricultural  credit  in 
France  into  an  organic  system  which  today  spreads  over  the 
whole  country. 

The  characteristics  of  this  system  are  the  following: 
decentralization,  mutuality,  organization  according  to  oc- 
cupation, and  state  aid.  Its  object  consists,  in  the  first 
place,  in  supplying  farmers  with  the  means  necessary  for 
carrying  on  the  ordinary  agricultural  operations  by  means  of 
loans  for  short  periods;  in  the  second  place  in  facilitating  co- 
operative societies  and  individual  farmers  in  carrying  on 
operations  extending  over  long  periods. 

Besides  the  cooperative  credit  encouraged  by  the  state 
there  exist  also  various  minor  groups  of  cooperative  institu- 
tions which  have  wished  to  remain  entirely  independent  and 
which  rely  solely  on  their  own  resources.  We  will  confine  our 
description  to  the  state-aided  banks. 


3l8]  BANKERS  TRUST  COMPANY 

St  ate- Aided  Cooperative  Credit 

The  fundamental  laws  which  regulate  the  state-aided 
system  of  agricultural  cooperative  credit  are  those  of  No- 
vember 5th,  1894,  and  of  March  31st,  1899.  The  former 
instituted  the  local  mutual  agricultural  credit  society;  the 
latter  the  regional  bank,  which  groups  together  the  local  so- 
cieties of  a  given  district,  either  the  region,  the  department  or 
a  special  area  determined  by  its  agricultural  characteristics. 

Credit  Agricole  Mutuel 

This  is  the  agency  through  which  state  aid  is  extended  to 
the  cooperative  societies.  It  has  no  capital  of  its  own  but  is 
simply  a  medium  for  state  action.  The  state  derives  its 
funds  for  aiding  agriculture  from  the  perpetual  loan  of 
40,000,000  francs,  free  of  interest,  made  by  the  Bank  of 
France  in  1897  in  consideration  of  the  extension  of  its 
privilege  of  note  issue  and  from  a  share  of  the  profits  of  the 
bank  received  by  the  state  which  it  allocates  to  this  use. 

Subsidiary  to  the  Credit  Agricole  there  are  first  the 
regional  banks  and  secondly  local  societies,  fhe  members  of 
which  are  the  ultimate  borrowers.  There  is  a  regional  bank 
for  each  of  the  89  departments  into  which  France  is  divided 
for  administrative  purposes  and  a  local  society  for  each  of 
the  agricultural  communes. 

The  Credit  Agricole,  is  not  in  any  sense  a  bank  but 
merely  a  department  of  the  ministry  of  agriculture,  under 
the  direct  supervision  of  the  minister  of  agriculture  who 
is  assisted  by  an  advisory  commission  of  32  members 
whom  he  appoints.  This  commission  includes  four  senators, 
six  deputies,  the  governor  of  the  Bank  of  France  and  several 
heads  of  regional  offices.  They  meet  four  times  a  year  and 
suggest  to  the  minister  the   amount  of  money  which   he 


FRENCH  PUBLIC  FINANCE  [  3  I9 

should  turn  over  to  the  regional  banks  and  which  they  in 
turn  are  to  pass  along  through  the  local  agricultural  banks 
to  the  individual  borrowers.  There  is  also  a  large  staff  of 
field  supervisors  who  superintend  the  workings  of  the  system. 

Purpose  for  Which  Loans  are  Made 

The  loans  must  be  to  provide  capital  for  financing  a  crop 
from  seed  time  to  harvest,  to  purchase  agricultural  imple- 
ments or  to  buy  a  horse,  a  cow  or  fertilizers;  in  short  to 
finance  agricultural  "turn  over."  Loans  are  not  made  to 
those  who  want  to  borrow  to  buy  goods  or  chattels  not 
needed  to  produce  a  crop  or  improve  the  land.  The  local 
offices  are  in  communities  where  everybody  knows  everyone 
else.  They  ask  what  a  man  wants  to  borrow  for.  If  he 
wants  400  francs  to  buy  a  cow  and  in  four  or  five  days  does 
not  do  so,  his  associates  know  it  and  call  him  to  account. 

The  Local  Credit  Societies 

The  local  societies  may  be  composed  either  of  the  whole 
or  a  part  of  the  members  of  one  or  more  agricultural  syndi- 
cates, or  of  the  members  of  one  or  more  mutual  agricultural 
insurance  societies.  The  object  of  this  provision  is  to 
strengthen  their  characteristicof  mutuality  and  solidarity  and 
to  facilitate  mutual  acquaintance  and  confidence  among  the 
persons  composing  the  credit  society. 

The  purpose  of  a  local  credit  society  is  to  facilitate  or  to 
guarantee  the  operations  either  of  the  societies  mentioned  or 
of  the  members.  They  have  a  restricted  area  of  operation, 
limited  to  the  commune,  the  canton  or  the  village.  The 
formalities  of  registration  are  reduced  to  a  minimum  and  they 
are  exempted  from  certain  taxes. 

Their  initial  capital  is  formed  by  shares  i^^ quotes-parts"). 


320j  BANKERS  TRUST  COMPANY 

subscribed  exclusively  by  the  members;  it  is  sufficient  if  one- 
fourth  is  paid  up.  The  shares,  which  are  generally  of  the 
value  of  20  or  40  francs  each,  do  not  give  any  right  to  dividend, 
but  bear  a  fixed  rate  of  interest  which  must  not  exceed  4 
per  cent.  The  societies  may  receive  deposits  with  or  without 
interest. 

The  law  allows  the  utmost  latitude  to  the  societies  to  de- 
cide upon  the  character  and  extent  of  the  liability  of  their 
members.  In  the  majority  of  cases,  the  societies  have  decided 
that  their  members  shall  be  liable  up  to  the  amount  of  the 
shares  subscribed.  Some  have  fixed  upon  a  wider  liability, 
either  unlimited  liability  of  all  the  members  such  as  is  found  in 
the  RaifFeisen  banks,  or  unlimited  liability  of  a  certain  number 
of  members  (for  example,  the  members  of  the  committee  of 
management),  or  a  liability  extending  to  two,  three  or  four 
times  the  nominal  value  of  the  shares  of  each  member. 
Among  the  promoters  of  these  societies,  however,  there  is  a 
tendency  to  adopt  unlimited  liability  as  the  best  safeguard 
for  healthy  cooperation. 

The  society  is  managed  by  a  council  and  by  a  committee, 
which  generally  comprises  a  president,  a  vice-president  and  a 
secretary.  As  soon  as  it  is  established  it  becomes  affiliated 
to  the  regional  bank  of  the  department.  To  do  this  it  must 
subscribe  for  a  certain  number  of  shares  in  the  regional  bank. 
It  is  then  admitted  to  partake  in  the  credit  facilities  afforded 
by  the  regional  bank,  which  discounts  its  bills  or  grants 
loans  to  it  to  form  its  working  capital. 

In  the  first  case,  when  a  member  applies  for  a  loan  from 
the  local  society  it  requires  him  to  sign  a  bill,  which  is  then 
sent  to  be  discounted  to  the  regional  bank,  which  immediately 
forwards  the  amount  applied  for,  less  the  discount.  In  the 
second  case,  the  regional  bank  grants  to  the  local  society  a 


FRENCH  PUBLIC  FINANCE  [  3 21 

loan  which  is  usually  proportionate  to  the  amount  of  the 
shares  subscribed.  The  local  society,  when  it  does  not 
immediately  require  the  money  so  obtained,  deposits  it 
with  the  savings  bank  and  withdraws  from  time  to  time  such 
sums  as  may  be  necessary.  The  first  system,  which  is  simpler 
and  allows  of  a  greater  measure  of  control  by  the  regional 
bank  over  the  affiliated  societies,  is  adopted  in  the  great 
majority  of  cases. 

The  rate  of  interest  on  the  loans  must  naturally  be  higher 
than  the  discount  required  by  the  regional  banks. 

As  to  the  size  of  the  loans,  in  some  societies  the  sums 
which  may  be  advanced  to  members  are  proportionate  to 
the  shares  which  they  have  subscribed,  and  may  be  lo,  15 
or  20  times  their  amount.  In  other  societies  it  is  laid  down 
that  the  loan  shall  not  exceed  a  fixed  sum,  1,000  or  2,000 
francs,  according  to  the  kind  of  cultivation  prevailing  and 
to  the  solvency  of  the  applicant. 

There  are  different  kinds  of  guarantee,  varying  according 
to  circumstances.  Certain  societies  insist  in  every  case  upon 
a  surety  or  a  "warrant,"  or  upon  the  deposit  of  securities. 
Others  only  require  such  guarantees  when  the  loan  is  of  a 
certain  amount.  If  the  object  of  the  loan  is  the  purchase 
of  live  stock,  the  animals  must  always  be  insured. 

The  period  of  the  loans  varies,  according  to  the  nature 
of  the  operations  to  be  undertaken,  from  three  months  to  a 
year.  The  period  of  the  bills  varies  according  to  the  period 
of  the  loan  and  according  to  the  system  adopted  by  the 
regional  bank  to  which  the  local  society  is  affiliated.  Many 
regional  banks  only  allow  bills  of  three  months,  with  two, 
three  or  four  renewals;  others  allow  bills  for  a  period  equal 
to  that  of  the  loan.  In  the  case  of  renewals  an  instalment 
payment  is  almost  always  required. 


322]  BANKERS  TRUST  COMPANY 

At  least  three-fourths  of  the  profits  of  the  society  are 
allocated  to  the  formation  of  a  reserve  fund,  until  that  fund 
is  equal  to  half  the  paid-up  share  capital.  The  balance,  if 
the  general  meeting  so  decides,  may  be  divided  among  the 
individual  members  in  proportion  to  their  dealings  with  the 
society. 

When  a  society  is  dissolved  the  reserve  fund  and  other 
assets  are  divided  among  the  members  in  proportion  to  their 
shares  unless  (as  is  generally  the  case)  the  rules  have  pro- 
vided for  their  application  to  some  work  beneficial  to  agri- 
culture. 

The  Regional  Banks 

The  agricultural  credit  banks  of  the  second  degree,  called 
regional  banks,  are  regulated  by  the  Law  of  March  31st, 
1899.  They  are  based  upon  the  same  principles  as  the  local 
societies  and  they  enjoy  the  same  privileges.  They  are 
composed  of  local  societies  and  of  individual  farmers,  but 
two-thirds  of  the  shares  are  reserved  by  preference  to  the 
former.  The  local  societies  usually  pay  up  their  shares  in 
full;  the  individual  members  as  a  rule  only  pay  one-forth. 
Each  member  is  liable  up  to  the  amount  of  the  shares  sub- 
scribed. The  committee  of  management  of  a  regional  bank 
is  elected  from  the  representatives  of  the  local  societies.  They 
receive  from  the  state,  out  of  the  funds  furnished  by  the 
Bank  of  France,  loans  without  interest,  up  to  the  amount 
of  four  times  their  paid-up  capital,  for  a  period  of  five  years, 
subject  to  renewal.  If,  for  example,  there  are  in  a  depart- 
ment 10  local  societies  which  have  each  subscribed  10,000 
francs,  their  shares  form  an  initial  capital  of  100,000  francs 
for  the  regional  bank;  the  government  will  then  make  an 
advance  of  400,000  francs. 


FRENCH  PUBLIC  FINANCE  [323 

The  regional  banks  are  authorized  to  receive  deposits  in 
the  form  of  running  accounts  and  to  issue  certificates  of  de- 
posit. The  law  limits  the  interest  allowed  to  a  maximum  of  5 
per  cent.,  and  fixes  the  maximum  of  the  deposits  w^hich  the 
banks  may  receive  and  the  certificates  which  they  may  issue  at 
three-fourths  of  the  amount  of  the  loan  notes  which  they 
hold.  The  profits  are  carried  to  the  reserve  fund  which  serves, 
in  due  course,  to  repay  the  state  loans. 

To  the  primary  object  of  the  regional  banks  others  have 
been  added  in  recent  years,  namely,  the  making  of  loans  to 
cooperative  societies  for  the  production  and  sale  of  agri- 
cultural produce,  and  of  loans  to  individual  farmers  for  the 
acquisition  and  improvement  of  small  holdings.  For  these 
purposes  special  advances  are  made  by  the  state  to  the 
regional  banks  out  of  the  fund  provided  by  the  Bank  of 
France. 

How  Loans  Are  Made 

The  state  loans  to  the  regional  office  without  interest;  the 
regional  office  loans  to  the  local  office  at  3  per  cent.;  the 
local  office  loans  to  the  farmers  at  between  33^  per  cent, 
and  4  per  cent.;  in  the  northern  region  at  3^  per  cent,  and 
in  the  southern  at  4  per  cent.  At  least  these  were  the  rates 
prior  to  the  war. 

The  farmer  draws  a  bill  to  himself,  takes  it  to  the  office  of  his 
local  society  and  the  board  of  administration  then  considers  it. 
If  they  approve  it,  the  president  signs  it — it  then  has  two 
signatures — and  then  sends  it  to  the  regional  bank.  If  the 
regional  bank  has  plenty  of  money  it  will  lend  the  money 
directly;  if  not,  the  president  of  the  regional  bank  signs  it — 
it  then  has  three  signatures — and  it  is  taken  to  the  Bank  of 
France  for  rediscount.     For  example:    During  the  crisis  in 


324  ]  BANKERS  TRUST  COMPANY 

the  wine-growing  region  at  Montpellier  in  the  south  of 
France  in  1906,  the  regional  bank  had  one  million  francs 
capital;  the  government  then  added  four;  that  made  five,  but 
they  loaned  at  that  bank  altogether  16  million  francs.  The 
difference  was  obtained  from  the  Bank  of  France  by  the 
method  described  above. 

Loans  are  made  only  to  members.  Up  to  the  close  of 
1919,  the  latest  date  for  which  we  have  data,  the  loans  by 
the  state  through  the  Credit  Agricole  had  aggregated  124,- 
143,000  francs,  of  which  amount  102,097,000  francs  were  still 
outstanding.  There  has  never  been  a  loss  by  the  Credit 
Agricole. 

Cooperative  Societies 

Since  1906  there  has  been  another  kind  of  credit — 
collective  credit  for  a  long  term  of  years  for  cooperative 
societies.  These  are  societies  for  the  production,  preserva- 
tion, sale  or  transformation  of  agricultural  products.  There 
are  cooperative  agricultural  societies  in  the  wine-growing 
regions.  There  are  cooperative  dairy  societies  for  making 
butter  and  cheese;  cooperative  societies  which  use  water- 
falls and  electricity;  cooperative  mills  to  grind  corn;  co- 
operative railways  to  bring  beet  roots  to  the  sugar  refinery; 
cooperative  distilleries  and  cooperative  warehouses  for  corn. 

Loans  to  these  societies  are  made  on  the  consolidated 
liability  of  all  of  the  members  and  are  also  a  mortgage  upon 
their  real  estate;  their  responsibility  is  absolutely  without 
limit. 

Loans  to  these  societies  by  the  government  are  limited 
to  twice  the  capital  furnished  by  themselves.  These  loans 
are  made  for  long-time  investments.  If  a  cooperative  society 
wants  a  capital  of  150,000  francs  it   has  to   contribute  up 


FRENCH  PUBLIC  FINANCE  [325 

to  50,000  francs  and  regional  banks  will  contribute  100,000 
francs  of  government  funds  at  2  per  cent. 

The  minister  of  agriculture,  acting  with  the  commission 
above  referred  to,  determines  the  amount  of  the  loans, 
provided  the  regional  bank  in  the  first  instance  approves  and 
sends  the  application  to  the  commission.  If  the  regional  bank 
does  not  approve  the  case  goes  no  further. 

Membership:  The  members  must  be  landowners,  perhaps 
only  for  a  small  amount.  The  number  of  shares  which  a  man 
may  take  depends  upon  circumstances.  In  a  cooperative 
dairy  a  member  having  20  cows  would  have  20  shares,  one 
with  one  cow  one  share,  but  both  are  liable — ^without  limit. 
All  members  when  organizing  sign  a  document  accepting  the 
liability. 

Dividends:  The  cooperative  societies  pay  no  dividends 
as  such,  but  a  stockholder  may  receive  payments  which 
cannot  in  any  case  exceed  4  per  cent. 

Profits:  These  payments  come  from  the  profits  of  the 
societies.  At  the  end  of  the  year  the  profits  of  the  co- 
operative societies  are  determined  and  divided  into  different 
parts. 

The  first  payment  is  2  per  cent,  to  the  regional  bank 
which  makes  the  loan.  The  second  charge  is  for  the  sinking 
fund  for  the  capital  of  the  loan.  The  third  distribution  is  to 
the  shareholders  for  interest,  which  cannot  exceed  4  per  cent, 
upon  the  capital  they  have  paid  in.  If  anything  remains,  it 
is  divided  between  the  members,  not  according  to  the  capital 
which  they  have  provided,  but  according  to  the  amount  of 
business  they  have  done. 

The  government  loans  without  interest  to  the  regional 
banks,  but  the  latter  charge  2  per  cent,  for  their  advances  to 
the  cooperative  societies.    This  is  because  the  regional  bank 


326  ]  BANKERS  TRUST  COMPANY 

guarantees  the  government  against  loss,  standing  between 
it  and  the  societies. 

The  amount  of  loans  to  cooperative  societies  is  limited  by 
law  to  one  third  the  return  which  comes  annually  from  the 
Bank  of  France.  They  cannot  touch,  for  instance,  the  40 
million  francs  paid  over  by  the  Bank  of  France  in  1897. 

Purpose:  The  purpose  of  the  cooperative  societies  must 
be  exclusively  agricultural.  However,  this  term  is  rather 
liberally  construed,  e.  g.,  a  cooperative  weaving  society 
might  borrow  on  the  transformation  of  the  wool  to  yarn — 
this  would  be  regarded  as  agriculture — but  beyond  that  step 
it  is  no  longer  agriculture.  Meat  from  pigs  raised  can  be 
borrowed  against,  but  not  meat  obtained  from  pigs  bought, 
and  so  on. 

Popular  Banks 

A  law  was  promulgated  in  March,  191 7,  with  the  object 
of  facilitating  the  organization  of  credit  for  small  traders  and 
small  manufacturers.  Mutual  guarantee  societies  may  now 
be  constituted  among  men  of  these  classes.  Capital  may 
be  taken  up  by  subscribers  who  are  not  entitled  to  reap  the 
benefits  of  the  organization.  Special  rules  lay  down  the 
conditions  on  which  subscribers  must  work.  Members  may 
withdraw  at  the  end  of  any  year  after  giving  three  months 
formal  notice,  but  the  money  value  of  their  shares  may  only 
be  paid  over  after  all  operations  that  were  outstanding  at  the 
date  of  payment  or  withdrawal  have  been  liquidated.  Special 
precautions  are  taken  to  prevent  any  credit  being  given  rashly, 
and  as  regard  profits  10  per  cent,  automatically  goes  to 
reserve,  4  per  cent,  interest  will  then  be  paid  to  shareholders, 
three-quarters  of  the  surplus  will  go  automatically  to  reserve 
and  what  is  left  is  to  be  divided  among  the  various  members 


FRENCH  PUBLIC  FINANCE  [  327 

according  to  the  amount  of  business  they  have  done.  Pay- 
ments to  reserve  cease  to  become  obligatory  when  the  reserve 
funds  equal  half  the  capital.  The  directors  are  personally 
responsible  in  the  event  of  any  infringement  of  the  articles. 
Subscribers  and  directors  must  be  of  French  nationality. 
The  act  extends  to  small  traders  and  manufacturers  privileges 
somewhat  similar  to  those  enjoyed  by  agriculturists  through 
their  syndicates. 


Chapter  XXVI 
The  Savings  Banks 

THE  first  savings  bank  to  be  established  in  France  was 
that  of  Paris.  This  was  founded  in  1818  by  Baron  de 
Lessert.  In  October,  1817,  the  Baron  wrote  to  a  friend  in 
England  as  follows: 

"I  have  the  honor  to  reply  to  your  letter  of  the  21st 
instant,  in  which  you  requested  me  to  furnish  you  with  some 
details  of  what  had  been  done  in  France,  in  respect  to  savings 
banks.  I  feel  gratified  that  you  have  addressed  your  in- 
quiries to  me;  but  I  regret  that  I  am  unable  to  afford  you  any 
satisfactory  information  on  this  subject.  We  in  this  country 
have  long  been  impressed  with  a  sense  of  the  value  of  these 
benevolent  establishments,  which  are  more  useful  than  any 
other  charities,  since  they  tend  to  prevent  poverty,  whilst 
the  majority  of  others  often  have  a  contrary  effect.  But  in 
spite  of  this  conviction,  the  events  of  the  Revolution  and 
occurrences  of  a  more  recent  date,  have  prevented  the  fulfil- 
ment of  our  wishes  in  this  respect. 

"Institutions,  bearing  an  analogy  to  these  banks,  have, 
however,  been  formed  at  different  periods  under  the  designa- 
tion of  *Caisses  d'Epargnes',  'Caisses  des  Employes  et 
Artisans',  *Caisses  des  Juives  et  Orphelins',  etc.,  etc.,  which 
are  a  specie  of  tontines,  or  life-investments,  similar  to  the 
*Life  Insurance  Societies';  but  these,  having  been  directed 
by  views  of  personal  interest,  have  been  attended  with  little 
success. 

"In  almost  all  public  offices,  savings  funds  have  been 
likewise  established,  they  consist  of  a  reserve  from  the 
328] 


FRENCH  PUBLIC  FINANCE  [329 

salaries  of  persons  in  office,  and  provide  pensions  on  retire- 
ment, or  during  old  age. 

"I  have  also  assisted  in  the  formation  of  the  *Societes  de 
Prevoyance*  (Friendly  Societies)  in  which  workmen  deposit 
a  weekly  sum,  and  from  which  they  derive  relief  in  sickness, 
infirmity,  or  old  age.  There  are  nearly  lOO  of  these  societies 
in  Paris,  each  comprising  from  80  to  120  members,  and  having 
their  separate  rules  and  constitutions. 

*'Those  who  devote  themselves  to  whatever  can  contribute 
to  the  welfare  of  their  fellow  creatures,  have  been  struck  with 
the  great  advantages  attending  the  'savings  banks'  which 
have  arisen  in  England  within  these  few  years;  they  are 
delighted  with  their  success,  and  have  taken  a  lively  interest 
in  their  prosperity.  We  have  procured  the  requisite  pros- 
pectuses and  information;  and  are  in  hopes  that  we  shall  be 
enabled  in  a  short  time  to  imitate  the  honorable  and  useful 
example,  which  yourself  and  your  colleagues  have  set,  and 
which  has  been  crowned  with  such  complete  success." 

The  First  Savings  Bank  Founded  in  18 18 

The  savings  bank  of  Paris  was  established  by  royal 
ordonnance  dated  the  21st  of  the  following  July.  Associated 
with  De  Lessert  in  founding  it  was  the  Duke  of  Laroche- 
foucauld-Liancourt.  The  example  of  Paris  was  followed  by 
Bordeaux,  Metz,  Rouen,  Marseille,  Brest,  Le  Havre,  Lyon, 
Nantes,  Troyes  and  Reims. 

Up  to  1835  these  banks,  at  one  time  called  "Ordinary 
Savings  Banks"  but  which  are  now  denominated  as  "Private 
Savings  Banks,"  to  distinguish  them  from  the  national  or 
postal  savings  banks,  existed  under  different  forms  such  as 
private  institutions,  joint  stock  companies  and  the  like. 
Since  then  they  have  been  under  government  surveillance 


330j  BANKERS  TRUST  COMPANY 

and  have  been  considered  as  institutions  "of  public  utility/* 
There  are  now  three  groups  of  the  private  savings  banks, 
viz.:  those  independent  of  municipal  authority  and  subject 
only  to  state  control;  second,  those  which  are  more  or  less 
connected  with  municipal  organizations  and  in  which  the 
mayor  is  occasionally  one  of  the  chief  officers,  and  other  officers 
of  which  can  be  designated  by  the  municipal  council,  and 
third,  those  which  are  much  more  closely  connected  with  the 
municipalities,  in  which  the  majority  of  the  officers  are  legally 
appointed  by  the  municipal  council,  but  even  these  savings 
banks  have  an  independent  legal  existence  apart  from  the 
city. 

All  three  classes  practically  are  organized  in  the  same 
way.  They  are  governed  by  a  board  of  directors  which, 
according  to  the  groups  just  mentioned,  is  self-electing  or  is 
appointed  altogether  or  in  part  by  the  municipal  council. 
They  have  two  classes  of  funds,  those  deposited  by  the 
people  and  the  surplus  accumulated  out  of  the  profits  of  the 
business. 

The  savings  banks  carry  only  sufficient  cash  reserve  to 
meet  the  probable  demand  of  several  days.  They  deposit 
only  with  the  Caisse  des  Depots  et  Consignations  (see  page 
225)  which  may  be  thought  of  in  this  connection  as  a  central 
bank  for  the  savings  banks. 

Each  savings  bank  has  an  account  current  with  the  Caisse, 
where  it  is  legally  bound  to  deposit  the  sums  received  from  its 
depositors  and  from  which  it  draws  the  funds  necessary  to 
meet  withdrawals. 

Savings  banks  are  allowed  by  the  Caisse  a  rate  of  interest 
on  their  deposits  fixed  each  year  according  to  the  rate  of 
income  derived  by  the  Caisse  from  its  investments.     First  a 


FRENCH  PUBLIC  FINANCE  [33  I 

sum  equal  to  ^%  of  the  total  savings  banks  funds  is  credited 
to  a  special  reserve  and  guaranty  fund  established  by  law 
which  must  accumulate  until  it  reaches  10%.  This  fund 
is  applicable  to  reimburse  the  Caisse  for  any  losses  resulting 
from  the  sale  of  its  securities  held  as  an  investment  for 
savings  banks  funds. 

The  savings  banks,  out  of  the  interest  received  by  them, 
must  put  aside  an  amount  for  their  managing  expenses  and 
the  building  up  of  a  personal  capital,  not  less  than  >^%  and 
not  more  than  ^2%  of  the  total  of  the  accounts  of  depositors. 
Therefore  the  rate  of  interest  which  they  allow  their  clients 
is  from  }i%  to  ^2%  less  than  that  received  from  the  Caisse. 

How  Deposits  Are  Secured 

The  deposits  are  secured  first  by  the  funds  lodged  with  the 
Caisse  des  Depots  et  Consignations;  second,  by  the  property 
of  the  savings  banks  themselves;  third,  by  the  general  funds 
which  have  been  provided  out  of  the  >^%  which  is  held 
back  from  the  income  on  investments. 

Personnel  of  Management 

Generally  the  banks  select  as  ojfficers  men  of  influence  in 
the  community  who  are  apt  to  be  men  of  leisure,  very  often 
men  who  have  retired  or  who  are  of  independent  means,  but 
there  are  frequently  important  business  men  on  the  board. 
In  Paris,  for  instance,  there  are  several  well-known  bankers 
on  the  board. 

State  Control 

The  savings  banks  have  always  been  subject  to  the 
ministry  of  labor.  Up  to  1895  control  was  limited  to  the 
inspection  in  Paris  of  their  reports  and  documents.    At  that 


332  J  BANKERS  TRUST  COMPANY 

time,  through  the  cooperation  of  the  ministry  of  finance 
arrangements  were  made  for  a  system  of  inspection  on  the 
spot.  The  treasurers-general  in  the  different  departments 
now  forward  reports  on  the  savings  banks  to  the  minister  of 
finance  who  delegates  his  own  inspectors  to  examine  them. 
These  reports  are  then  communicated  to  the  ministry  of 
labor  which  examines  them  in  turn  and  then  addresses  to  the 
banks  the  necessary  comments. 

These  examinations  by  the  treasurers-general  are  or- 
dinarily made  once  a  year;  the  inspectors  of  finance  make  the 
round  of  the  country  and  examine  each  bank  perhaps  only 
once  in  four  or  five  years. 

Withdrawals  of  Deposits 

By  law  15  days  notice  of  withdrawals  is  required;  as  a 
matter  of  fact  not  more  than  four  or  five  is  necessary.  The 
law  provides  that  in  case  of  a  crisis  the  bank  may  postpone 
its  payments  and  pay  out  only  fragmentary  funds. 

National  [Postal)  Savings  Banks 

These  banks  were  inaugurated  in  1881.  Leaving  details 
aside  th^  system  is  the  same  as  that  of  the  ordinary  savings 
banks,  except,  first,  that  all  post-offices  act  as  its  instruments 
for  the  collection  of  funds  and,  second,  that  the  legislature 
of  1 88 1,  in  order  not  to  permit  too  much  competition  with 
the  private  savings  banks,  decided  that  interest  paid  by  the 
Caisse  des  Depots  et  Consignations  on  postal  savings  banks 
deposits  should  be  50  centimes  less  than  that  paid  on  the 
deposits  of  the  ordinary  savings  banks. 

The  rules  governing  both  classes  of  savings  deposits  are 
the  same  as  to  the  period  when  interest  is  allowed  and  the 
time  of  withdrawal  and  the  general  conduct  of  the  business. 


FRENCH  PUBLIC  FINANCE  [  333 

The  national  savings  banks  are  under  control  of  the 
ministry  of  public  works  which  controls  the  post  office. 

The  Caisse  des  Depots  et  Consignations  merely  holds  for 
account  of  the  national  savings  banks  the  securities  pur- 
chased with  their  funds,  which  remain  their  property,  and 
the  income  of  which  k  credited  to  them  in  full.  They  con- 
stitute their  own  reserve  fund  by  a  levy  of  0.60%  of  the 
amount  of  the  deposits — a  levy  which  permits  them  to  cover 
their  own  managing  expenses. 

The  rate  of  interest  allowed  by  the  Postal  Savings  Bank 
to  its  depositors  must  be  ^  per  cent,  lower  than  the  interest 
allowed  by  the  Caisse  to  the  private  savings  banks. 

Maximum  Deposits  Allowed 

The  maximum  deposit  allowed  by  law  in  any  savings 
bank  was  originally  1,500  francs  and  no  one  could  deposit 
more  than  1,500  francs  in  any  one  year.  In  1917  this  limit 
was  raised  to  3,000  francs,  and  in  1919  it  was  again  raised 
to  5,000  francs. 

Amount  on  T>  epos  it  in  Savings  Banks 

The  chart  here  printed  shows  at  a  glance  the  growth 
of  deposits  from  1873  to  1920,  inclusive.  Prior  to  191 2  we 
have  used  the  average  annual  figures  for  five-year  periods. 
The  figures  at  the  base  of  each  column  give  in  millions  the 
number  of  depositors.  From  1913  to  1920,  inclusive,  the 
figures  give  the  status  of  the  accounts  at  the  end  of  each  year. 
It  will  be  noted  that  during  the  war  deposits  fell  off,  but 
that  since  the  armistice  they  have  increased  in  a  marked 
manner.  Preliminary  figures  indicate  that  there  was  a 
further  substantial  increase  in  deposits  in  1921. 


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334 


Chapter  XXVII 
The  Fortune  of  France 

IN  191 2   M.  Edmond  Thery,  the  editor  of  U Economiste 
EuropSen,  estimated  the  pubHc  fortune  of  France  to   be 
302,617  million  francs.      His  analysis  is  as  follows: 

PUBLIC  FORTUNE  OF  FRANCE 

At  the  Close  of  1912 

(In  francs — 000,000  omitted) 

Real  estate — not  improved 77,900 

Improved 60,503 

Farm  animals  and  agricultural  supplies    ....  9, 181 

Industrial  and  commercial  funds 10,316 

French  bonds  and  stocks 69,240 

Foreign  bonds  and  stocks 42,675 

Gold 7,487 

Silver      1,961 

Furniture,  objects  of  art  and  luxury 21,060 

Automobiles,  horses  and  carriages 2,294 

302,617 

In  no  country  in  the  world  is  wealth  more  evenly  diffused 
than  in  France.  We  have  already  noted  that  there  are  some 
15  million  savings  banks  accounts.  This  would  be  about 
two  accounts  in  each  family.  In  1919  the  average  deposit 
in  the  national  savings  banks  was  384.88  francs  and  in  the 
private  savings  banks  588.20  francs. 

It  is  estimated  that  75  per  cent,  of  the  French  families 
own  their  own  homes. 

Perhaps  the  most  telling  evidence  of  the  wealth  of 
France  is  to  be  found  in  the  realization  that  around  80  per 

[335 


336  ]  BANKERS  TRUST  COMPANY 

cent,  of  the  cost  of  the  war  was  financed  by  the  French 
people  themselves.  That  is,  as  shown  in  the  earlier  chapters 
of  this  book,  of  an  estimated  war  time  expenditure  of  207^^ 
billion  francs,  all  but  about  35  billion  was  provided  at  home. 

In  the  three  years,  1919,  1920  and  1921,  the  French  home 
market  absorbed  over  82  billion  francs  worth  of  government 
issues  and  in  addition  over  27  billion  francs  worth  of  indus- 
trial, railroad  and  municipal  issues. 

Prior  to  the  war  the  French  people  were  in  receipt  annually 
of  an  income  from  colonial  and  foreign  investments  variously 
estimated  at  from  two  to  three  billion  francs.  Their  ability 
to  provide  for  the  war  expenditure  was  due  in  part  to  realizing 
upon  some  of  these  investments,  but  after  making  liberal 
allowance  for  this  change  in  the  form  of  investment  and  for 
the  known  fact  of  the  pouring  out  of  billions  of  hoarded  gold, 
there  must  have  been  intensive  saving  to  have  accomplished 
such  a  result.  It  is  this  ability  to  save  which  made  France, 
before  the  war,  one  of  the  richest  nations  in  the  world. 

We  believe  that  notwithstanding  the  losses  occasioned  by 
the  war,  the  wealth  of  France  today,  estimated  on  a  specie 
basis,  closely  approximates  or  perhaps  equals  her  pre-war 
wealth.  This  is  partly  due  to  the  repatriation  of  Alsace  and 
Lorraine,  but  it  is  also  due  to  the  fact  that  the  war  apparently 
served  to  intensify  the  normal  saving  habit  of  the  people  and 
thus  enabled  them  to  meet  the  burden  which  it  brought 
without  seriously  impairing  the  pre-war  national  fortune. 


FRENCH  PUBLIC  FINANCE 


337 


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FRENCH  PUBLIC  FINANCE 


341 


Authorities 

As  this  book  largely  deals  with  events  which  have  tran- 
spired since  1914,  the  chief  reliance  for  facts  and  statistics  has 
necessarily  been  placed  upon  current  official  and  unofficial 
publications.  In  addition  to  the  authorities  mentioned  in  the 
Foreword  and  in  the  text,  the  following  are  the  chief  publi- 
cations which  have  been  consulted: 


OFFICIAL  PUBLICATIONS 


Annuaire  Staiistique.  Statistique 
Generale  de  la  France,  Paris. 
Contains  valuable  statistics  in  regard 
to  climate,  population,  agricultural 
production,  industries,  transportation, 
money,  credit  and  banking,  as  well  as 
data  in  regard  to  the  public  debt  and 
public  income  and  expenditure. 

Budget,  The:  "Projet  de  Lot''  and 
the  reports  thereon  made  annu- 
ally to  the  Senate  and  to  the 
Chamber  of  Deputies  by  the 
finance  commissions  of  each 
chamber. 

Bulletin  de  Statistique  et  de  Legisla- 
tion Comparee.  Ministry  of  Fi- 
nance, Paris.     Monthly. 

Contains  the  only  detailed  financial 
statistics,  outside  of  those  appearing  in 
the  budget  reports,  which  have  been 
available  since  1914. 

Bulletin  de  la  Statistique  Generale 
de  la  France.  Paris,  Quarterly. 
Gives  economic  statistics,  especially 
re  foreign  trade,  prices,  wages,  etc. 


Compte  General  de  V Administra- 
tion des  Finances.  Ministry  of 
Finance,  Paris,  Annual. 

Gives  complete  statistics  in  regard  to 
the  national  finances.  Last  number 
issued  in  1914  covering  the  year  1913. 

Foreign  Trade:  Tableau  Generale 
du  Commerce  et  de  la  Navigaiton 
(Direction  Generale  des  Dou- 
anes).     Paris,  Annual. 

Fortnightly  Survey  of  French  Eco- 
nomic Conditions.  French  High 
Commission,  New  York,  Dec, 
1919— July,  1921. 

Journal  Officiel  de  la  Republique 

Frangaise. 

Printed  daily  during  sessions  of  par- 
liament. Contains  laws  and  reports 
on  debates. 


342 


BANKERS  TRUST  COMPANY 


the    Regency. 


UNOFFICIAL  PUBLICATIONS 

Public  Finance,  Banking  and  Currency 

Revolutionary  Period 

I 789- I 799 

Aulard,  a. — The  French  Revolu-      Perkins,  Jame^  Breck- 
Hon,  a  political  history.     1789- 
1804.     (Translation.)     4   Vols. 
London,  1910. 

Aulard  discusses  the  underlying  causes 
of  the  French  revolution  which  were 
largely  economic  in  their  origin. 

HiGGS,  Henry — Cambridge  Mod- 
ern History.  Vol.  8.  The  French 
Revolution.    Cambridge,   1904. 

An  excellent  short  study  of  the  finances 
of  this  period. 

Madelin,  Louis — The  French  Rev- 
olution. (Translation.)  New 
York,  1916. 

Contains    a    concise    analysis    of    the 


—France 
Boston, 


abuses  which  made  the  revolution 
possible.  "There  was  a  loud  cry  for 
equal  taxation."  Also  deals  satis- 
factorily with  the  financial  efforts  of 
the  revolutionary  governments. 

Marion,  Marcel — Histoire  Fi- 
nanciere  de  la  France  depuis 
1715.  Vol.  1,1715-1789;  Vol.  II, 
1789-1792.    Paris,  1919. 

The  latest  and  one  of  the  most 
authoritative  and  complete  works  on 
the  subject  for  the  period  covered. 

Necker,  Jacques — State  of  the 
Finances  of  France  Laid  before 
the.  King  (in  January,  1781). 
(Translation.)  London. 
A  Treatise  on  the  Administration 
of  the  Finances  of  France.  (Trans- 
lation.)   3  Vols.    London,  1785. 

These  treatises  by  the  Swiss  banker 
who  was  Director  General  of  the 
Royal  Treasury  under  Louis  XVI 
and  the  first  minister  of  the  finances 
at  the  beginning  of  the  revolutionary 
period,  are  important  for  the  data 
which  they  give  in  regard  to  the  public 
finances  at  the  close  of  the  old  regime 
and  at  the  beginning  of  the  new. 


Under 

1892. 

France  Under  Louis  XV.  2  Vols. 

Boston,  1897. 

Perkins  points  out  the  economic  con- 
ditions, largely  due  to  "unwise  and 
unjust  systems  of  taxation,"  which 
preceded  the  revolution. 

Taine,  H.  A.—The^  French  Revolu- 
tion. (Translation.)  3  Vols. 
New  York,  1878-1885. 

Deals  in  a  picturesque  way  with  the 
economic  and  financial  conditions  be- 
fore the  revolution  and  with  the 
financial  methods  of  the  revolutionary 
government. 


Thiers,  L.  A.— The  History  of  the 
French  Revolution  178Q-1800. 
(Translation.)   5  Vols.   London, 

1895. 

M.  Thiers  writes  authoritatively  of 
this  period.  His  statements  in  regard 
to  economic  and  financial  subjects  are 
especially  valuable. 

White,  Andrew  D. — Fiat  Money 
Inflation  in  France. 
There  are  several  editions  of  this 
classic  pamphlet.  The  best  edition 
was  issued  in  Toronto  in  19 14  for 
private  circulation.  This  is  one  of 
the  best  characterizations  and  de- 
scriptions of  the  effort  to  finance  the 
French  revolutionary  period  by  the 
issue  of  paper  money.  Incidentally 
the  author  points  out  the  dangers  of 
excessive  issues  of  paper  money. 

Young,  Arthur — The  Example  of 
France  a  Warning  to  Britain. 
London,  1793. 

The  observations  of  an  intelligent 
English  traveller  who  visited  France 
during  the  revolutionary  period. 


FRENCH  PUBLIC  FINANCE 


343 


Consulate  and  Empire 
1800-1814 


FouRNiER,  August — Napoleon  the 
First.  (Translation.)  New  York, 
1903. 

MoLLiEN,  Francois  Nicolas, 
CoMPTE — Memoires  d'un  Minis- 
tre  du  Tresor  Public. 

These  memoirs  of  Napoleon's  Minister 
of  the  Treasury  are  an  invaluable 
source  of  information  in  regard  to 
public  finances  and  the  Bank  of 
France  during  the  Napoleonic  period. 

Pariset,  Georges  —  Cambridge 
Modern  History.  Vol.  9 — Napo- 
leon. Cambridge,  1906. 


Sloane,  William  Milligan — 
Life  of  Napoleon  Bonaparte. 
3  Vols.    New  York,  1896. 

Thiers,  L.  A. — History  of  the  Con- 
sulate and  the  Empire  of  France 
Under  Napoleon.  (Translation.) 
20  Vols.   London,  1845. 

The  paragraphs  on  the  finances  of  the 
period  contained  in  these  volumes  are 
of  special  value  because  written  by  one 
of  the  foremost  statesmen  and  fi- 
nanciers of  France  who  lived  con- 
temporaneously with  the  events  de- 
scribed. 


The  Restoration 
1814-1830 


Cohen,    Bernard — Compendium 
of  Finance.    London,  1822. 

This  book  is  valuable  chiefly  because 
of  the  information  given  of  French 
finances  in  the  transition  period  from 
the  time  of  Napoleon's  first  abdication 
(18 14)  until  conditions  of  the  treasury 


became  stabilized  in  18 16,  and  the 
finances  reconstituted  under  Louis 
XVIII.  Cohen  also  gives  comparative 
data  in  regard  to  expenditures  running 
back  to  1806. 

For  other  sources  see  the  general 
histories  listed  below. 


The  July  Monarchy 
I 830- I 848 


Browning,  G. — The  Domestic  and 
Financial  Condition  of  Great 
Britain  .  .  .  and  Statistics  and 
Politics  of  France.  .  .  .  London, 
1834. 


Contains  useful  data  in  regard  to 
population,  the  national  income, 
revenues,  expenses  and  debt  between 
1830  and  1834. 

For  other  sources  see  the  general 
histories  listed  below. 


The  Republic  of  1848  and  the  Second  Empire 
1 848-1 870 

Martin,  H^e^-ri— History  of  France, 
(Translation.)  3  Vols.  Boston, 
1877- 

For   other    sources    see    the    general 
histories  listed  below. 


344 


BANKERS  TRUST  COMPANY 


The  Third  Republic 
1870-1913 


Bonnet,  Victor — The  Example  oj 
France.  New  York,  1875. 
Contains  two  essays  on  the  payment 
of  the  indemnity  and  the  management 
of  the  currency  during  and  after  the 
Franco-Prussian  War  (1870-1874). 

GiFFEN,  Sir  Robert — Economic 
Inquiries  and  Studies.  London 
1904.  Vol.  I,  p.  13 — The  Cost 
of  the  Franco-German  War. 

H  ANOTAUX,  Gabriel — Contempor- 
ary France  ( 1 870- 1 882) .  (Trans- 
lation.) 4  Vols.  Westminster, 
1903. 

An  invaluable  record  of  the  economic 
and  financial  happenings  immediately 
following  the  Franco-Prussian  War. 

Monroe,  A.  E. — The  French  In- 
demnity of  1871  and  its  Effects. 
The  Review  of  Economic  Sta- 
tistics (Harvard) .  October,  1 9 1 9 . 

Contains  some  data  not  to  be  found 
elsewhere. 

O'Farrell,  Horace  Handley — 
The  Franco-German  War  Indem- 
nity and  Its  Economic  Results. 
London,  1913. 

An  important  independent  study  of 
this  period,   especially  interesting   to 


students  of  present  currency  conditions 
in  France  and  elsewhere. 


Simon,  Jules — The  Government  of 
M.  Thiers,  from  8th  February, 
1871,  to  24th  May,  1873.  (Trans- 
lation.) 2  Vols.  New  York, 
1879. 

Say,  Leon — Les  Finances  de  la 
France  Sous  la  Troisieme  Re- 
publique.    Paris,  1898. 

A  reprint  of  the  official  report  in  regard 
to  the  payment  of  the  indemnity  of 
1871. 

Wagner,  Dr.  Adolph. — "Das 
Reichsjinanzwesen."  Jahrbuch 
fiir  Gesetzgebung,  Verwaltung 
und  Rechtsplege  des  Deutschen 
Reichs.   Leipzig,  1874. 

Gives  complete  data  from  the  German 
point  of  view  in  regard  to  the  payment 
of  the  indemnity  by  France  and  the 
use  made  thereof  by  Germany. 

Wolowski,  L.  F.  M.  R. — French 
War-fine;  How  it  was  Paid  and 
the  Economical  Consequences 
thereof  in  Germany  and  France. 
(Translation.)  New  York,  1875. 

An  important  study. 


The  Great  War 
1914-1921 


Baruch,  Bernard  M. — The  Mak- 
ing of  the  Reparation  and  Eco- 
nomic Sections  of  the  Treaty.  New 
York,  1920. 

This  book  is  a  valuable  source  book  for 
those  interested  in  having  detailed  in- 
formation in  regard  to  this  subject. 


BoGART,  E.  L. — Direct  and  In- 
direct Costs  of  the  Great  World 
War.    New  York,  19 19. 

Professor  Bogart  has  given  us  in  this 
publication  detailed  information  as  to 
the  costs  of  the  war.  His  estimates  of 
the  indirect  costs  are  of  special  interest. 


FRENCH  PUBLIC  FINANCE 


345 


The  Great  War — Continued 


1914-1921 


Cheradame,    Andre — The   Pan- 
German  Plot   Unmasked.    New 
York,  19 1 7. 
PanGermania.  New  York,  19 18. 

These  books  state  concisely  and  clearly 
the  proposed  plans  of  Germany  for 
the  control  of  Central  Europe  and  the 
exploitation  of  France  and  other  na- 
tions for  the  benefit  of  Germany. 

Jeze,  Gaston — The  Economic  and 
Financial  Position  of  France  in 
IQ20.  The  Quarterly  Journal  of 
Economics.  London,  February, 
1921. 

Notestein,  Wallace  and  Stoll, 
Elmer  E. — Conquest  andKultur. 
Washington,  19 18. 
This  pamphlet,  prepared  by  these  well 
known  historians  for  the  United  States 
Government,  is  made  up  of  quotations 
from  German  publications  stating  the 
aims  of  Germany  for  world  control  and 
the  methods  proposed  to  be  used  to 
secure  it. 


Periodicals:  Bankers  Trust  Com- 
pany Foreign  Information  Serv- 
ice, New  York;  Banque  Suisse, 
Monthly  Circulars,  Bale;  English 
Commerce  Reports;  International 
Institute  of  Agriculture  Bulletins, 
Rome,  Italy;  UFlconomiste  Eu- 
ropeen,  Paris;U  Sconomiste  Fran- 
cais,  Paris;  London  Joint  City  & 
Midland  Bank  Monthly  Review, 
London;  Statesman's  Year  Book, 
London;  The  Economic  Review, 
London;  The  Economist,  Lon- 
don; The  Statist,  London;  Stock 
Exchange  Gazette,  London^*  The 
Times,  London;  The  Times, 
New  York;  Wall  Street  Journal, 
New  York;  United  States  Com- 
merce Reports. 


Banks  and  Banking 


Annuaire  des  Valeurs  admises  a  la 
Cote  Officielle  de  la  Bourse  de 
Paris. 


Contains   annual 
and  other  data. 


reports,   quotations 


Assemblee  Generate  de  la  Banque 
de  France.  Compte  Rendu  au 
nom  du  conseil  general  de  la 
Banque  et  Rapport  de  MM  Les 
Censeurs. 
The  annual  report  to  stockholders. 

Conant,  Charles  A. — A  History 
of  Modern  Banks  of  Issue.  New 
York,  19 1 5. 


CouRTOis,  Alphonse  —  Hisfoire 
des  Banques  en  France.  Paris, 
i88i. 

This  is  one  of  the  standard  histories  of 
banking  in  France — a  good  authority. 

Credit  Establishments  (The  Com- 
mercial Banks  of  France). 

Annual  reports  and  monthly  state- 
ments are  published  by  the  important 
incorporated  banks  and  such  reports 
and  statements  have  been  taken  as 
authorities  in  this  book. 

Credit    Fonder   de    France — Rap^ 
ports  Presentes  A  u  Nom  Du  Con- 
seil D' Administration. 
The  annual  report  to  stockholders. 


346 


BANKERS  TRUST  COMPANY 


Banks  and  Banking — Continued 


Eliacheff,  Boris — Note  sur  le 
Credit  Fonder  de  France. 

An  original  study  in  manuscript  by 
this  careful  writer  which  has  been  of 
value  in  the  preparation  of  the  chapter 
on  the  Credit  Foncier. 

Kaufmann,  Dr.  E. — La  Banque  en 
France.   Paris,  19 14. 

This  is  a  translation  into  French  of  a 
book  originally  published  in  Germany 
in  1910.  It  is  a  very  complete  study 
of  banking  conditions  in  France  as  of 
the  date  of  original  publication. 

LiESSE,  ANDRE-Evolution  of  Credit 
and  Banks  in  France  from  the 
founding  of  the  Bank  of  France 
to  the  present  time  {iQog).  United 
States  National  Monetary  Com- 
mission— Senate  Document  No. 
522,  Washington,  1909. 

Reviews  the  steps  by  which  the 
Bank  of  France  has  obtained  a 
dominating  position  in  France.  Also 
gives  particular  attention  to  the 
development  of  the  great  joint  stock 
banks  (credit  establishments.) 

Mason,  J.  M. — Fiscal  Systems  of 
France,  Germany,  England  and 
the  United  States.  United  States 
National  Monetary  Commis- 
sion. Senate  Document  No. 
403,  Washington,  19 10. 

A  report  upon  the  manner  of  appropri- 
ating, receiving,  handling  and  dis- 
bursing public  moneys.  Attention  is 
given  to  the  assistance  rendered  by 
the  banks  in  fiscal  operations. 

Neymarck,  Alfred — French  Sav- 
ings and  Their  Influence  Upon 
the  Bank  of  France  and  Upon 
French  Banks.  United  States 
National  Monetary  Commis- 
sion. Senate  Document  No. 
494.  Washington,  19 10. 
M.  Neymarck  gives  an  account  of  the 
enormous  annual  ^vings  of  the  French 


people  and  of  the  great  support  this 
gives  to  the  Bank  of  France  and  to 
French  credit. 

Noel,  Octave — La  Banque  de 
France  Historique  et  Organisa- 
tion Administrative.  Paris,  1888. 
M.  Noel  gives  the  history  of  the  bank 
from  its  origin  in  1800  and  valuable 
information  as  to  the  way  in  which 
the  bank's  affairs  are  organized  and 
its  business  conducted. 

Notes  on  the  Postal  Savings  Systems 
of  the  Leading  Countries.  United 
States  National  Monetary  Com- 
mission. Senate  Document  No. 
658.   Washington,  1910. 

Gives  an  account  of  the  history  and 
organization  of  such  systems. 

Outline  of  the  European  Co-Opera- 
tive Credit  Systems.  Interna- 
tional Institute  of  Agriculture. 
Rome,  1912. 

Patron,  Maurice — The  Bank  of 
France  and  Its  Relation  to  Na- 
tional and  International  Credit. 
United  States  National  Mone- 
tary Commission.  Senate  Docu- 
ment No.  499.  Washington, 
1909. 

M.  Patron  shows  how  the  Bank  of 
France  pursues  the  essential  objects 
of  building  up  and  protecting  the 
national  gold  reserve  rather  than 
seeking  a  profit  for  its  shareholders. 
Describes  the  support  which  the  bank 
has  given  to  foreign  money  markets  at 
various  times. 

National  Monetary  Commission — 
United  States  Senate  Document 
No.  405,  Washington,  19 10. 

Interviews  held  in  Europe  by  delegates 
of  the  National  Monetary  Commis- 
sion with  representatives  of  the  lead- 
ing banks  and  financial  institutions — 
Important. 


FRENCH  PUBLIC  FINANCE 


[347 


The  Budget 


Stourm,  Rene — The  Budget — 
(Translation  from  7th  Edition 
of  "Le  Budget,"  Paris,  1913-) 
New  York,  19 17. 

This  is  a  book  which  must  be  studied, 
not  read,  and  it  can  only  be  thoroughly 


digested  by  studying  it  with  the  Compte 
General  de  L'Adrainistration  des 
Finances,  As  the  translators  have  not 
given  the  French  for  many  technical 
terms,  the  reader  will  find  it  essential 
also  to  have  before  him  a  copy  of  the 
French  edition. 


Government 


Barthelemy,  Joseph — Le  Gouy- 
ernement  de  la  France.  Paris, 
1919. 

Bodley,  John  Edward  C. — 
France.   2  Vols.   London,  1898. 

This  is  one  of  the  best  books  on  the 
French  constitution  and  form  of 
government.  Mr.  Bodley  lived  many 
years  in  France  and  wrote  from  a 
personal  knowledge  of  conditions 
there.  In  the  first  volume  he  gives 
an  interesting  characterization  of  the 
different  classes  of  French  society. 
So  far  as  the  government  of  France 
today  is  concerned,  it  should  be  borne 
in  mind  that  in  many  respects  con- 
ditions have  changed  since  this  book 
was  written. 

Bryce,  Viscount  James — Modern 
Democracies.  2  Vols.  New 
York,  1 92 1. 

Needless  to  say,  the  chapters  on  the 
government  of  France  will  be  found  to 
be  particularly  valuable,  not  only  for 
the  information  given  but  because  of 
Viscount  Bryce 's  comments. 


BuELL,  Raymond  L. — Contem- 
porary French  Politics.  New 
York,  1920. 

In  the  words  of  Prof.  C.  F.  J.  Hays 
of  Columbia  University,  this  volume 
is  "neither  dogmatic  nor  sentimental 
It  describes  and  analyzes.  ...  It 
forms  a  vital  contribution  to  a  sound 
and  lasting  accord  between  the  first 
republic  of  the  old  world  and  the  first 
republic  of  the  new." 

PoiNCARE,  Raymond — How  France 
is  Governed.  New  York,  19 19. 
This  book  is  written  by  the  present 
Premier  and  a  former  President  of 
France.  On  this  account  it  is  particu- 
larly valuable  and  authoritative  al- 
though Sait  and  Bryce  are  more  recent 
and  somewliat  more  detailed. 

Sait,  Edward  Mc  C. — Government 
and  Politics  of  France.  New 
York,  1920. 

A  very  complete  study  of  national  and 
,  local  government  in  France.  Excellent 
for  detailed  information.  "The  author 
is  at  pains  to  show  how  each  law,  each 
institution,  has  worked  and  does  work 
in  practice." 


General 


Bastable,  C.  a. — Public  Finance. 
Third  Edition.  London. 
This  standard  work  contains  much  in- 
formation of  value  in  relation  to 
French  banking  and  financial  condi- 
tions. 

Davis,  William  S. — A  History  of 
France  from  the  Earliest  Times 
to  the  Treaty  of  Versailles.  New 
York,  19 19. 

One  of  the  best  short  histories  brought 
out  as  a  result  of  the  war.    Contains 


excellent  outline  chronology  of  French 
history  and  a  good  select  bibliography 
with  discriminating  notes. 

DuRUY,    Victor — A    History    of 

France.   New  York,  1920. 

This  is  a  condensed  translation  of 
Duruy's  well-known  History  of  France. 
Duruy's  history  is  especially  strong  on 
economic  subjects.  The  sections  deal- 
ing with  financial  and  economic  sub- 
jects may  be  found  by  reference  to 
index. 


348 


BANKERS  TRUST  COMPANY 


General- 
English  Consular  and  Commercial 
Reports. 

These  reports  are  valuable  sources  of 
information  in  regard  to  French  affairs. 
They  may  be  found  in  the  Accounts 
and  Papers  from  year  to  year. 

Levasseur,  E. — Histoiredu  Com- 


•Continued 

merce   de   la    France.     2    Vols. 
Paris,  191 1. 

Contains  data  in  regard  to  commerce, 
banking  and  commercial  crises. 

Palgrave,  R.  H.  Inglis — Dic- 
tionary of  Political  Economy.  3 
vols.    London,  1919. 


Wealth  and  Income 

Many  French  writers  on  the  subject  of  wealth  and  income  base 
their  estimates  on  what  is  known  as  "L'Annuite  devolute."  They 
assume  that  the  transfers  of  property  by  death  or  by  gift  as  reported 
for  tax  purposes  represent  1/32  of  the  total  fortune  of  the  country  and  >^ 
of  the  national  income.  M.  Edmond  Thery  bases  his  estimates  on 
an  analysis  of  the  values  of  the  different  entities  which  make  up  what 
may  be  called  the  public  estate  and  estimates  the  national  income  from 
a  summation  of  the  probable  income  from  these  various  sources. 
M.  Thery 's  method  of  calculation  gives  somewhat  larger  figures  than 
the  other  method  but  seems  to  be  nearer  to  the  facts. 


Bonnet,  Victor — The  Example  of 
France.     New  York,  1875. 

Browning,  G. — The  Domestic  and 
Financial  Condition  of  Great 
Britain  .  .  .  and  Statistics  and 
Politics  of  France.  .  .  .  London, 
1834. 

Combat,  F.  J.- — Finances  Publi- 
ques  Emprunts  et  Placements 
pendant  la  Guerre.    Paris,  19 17. 

Foville,  a.  de — La  Richesse  en 
France.  (Revue  Economique 
International.  Vol.  2,  p.  7.) 
Paris,  1906. 

International  Financial  Conference. 
Brussels,  1920.    Paper  IV. 

Contains  estimates  for  different  coun- 
tries of  pre-war  national  incomes  and 
at  about  1920, 

Michel,  Albin  —  La  Richesse 
Franqaise.   Paris,  19 18. 

Office  National  des  Valeurs  Mobi- 
lieres.      Paris,  Annuaire   1913- 


1914:  p.  804,  Montant  du  port- 
feuille  francaise;  p.  805,  Rev- 
enue du  portfeuille  francaise; 
p.  807,  Statistiques  Generales. 

PuPiN,  Rene' — Richesse  Privee  et 
Finances  Frangaises  de  L'Avant- 
Guerre  a  VApres  Guerre.  Paris, 
1919. 

An  excellent  French  authority  for 
period  referred  to. 

Stam  p,  Sir  J .  C . — National  Wealth 
and  Income  of  Chief  Powers. 
(Journal  of  Royal  Statistical 
Society,  July,  19 19.) 
An  authoritative  source  of  information 
on  this  subject  as  of  dates  immediately 
preceding  the  war. 

Thery,  Edmond — La  Fortune  Pub- 
lique  de  la  France.  Paris,  191 1. 
La  Fortune  Publique  de  la  France. 
(L'ficonomiste  Europeen,  Feb- 
ruary 22,  1918,  p.  116.) 
Les  Problbmes  Economiques  de  la 
Guerre.  Paris,  19 16.  See  also 
chapter  xxvii  of  this  book. 


Ind 


ex 


A 

Adjoints — Assistants    to    mayors 

of  communes,  i6i 
Administration  of  the  Finances, 

218-228 

Administrative  control  and  ex- 
aminations (audits),  223 

Advisory  and  staff  services,  218 

Appropriations,  174;  not  used 
annulled  at  end  of  year,  223; 
supplementary,  175 

Bureaus  of  finance  administra- 
tion, 220 

Cabinet  of  the  minister  of  fi- 
nance, 218 

Central  administration — reve- 
nues, collection  and  disburse- 
ment of,  220 

Court  of  accounts,  224 

Division  of  central  cash  office, 
218 

Division  of  central  control,  218 

Division  of  control  of  bureaus, 
218,  219 

Division  of  funded  debt,  218 

Division  of  general  supervision, 
218 

Division  of  legal  bureau,  218 

Division  of  personnel  and  mate- 
rials, 218 

Division  of  public  accounting, 
219 

Division  of  transfer,  218,  219, 
221 

Expenditures,  authorization  for, 
222 

Ordonnancement,  223 

Ordonnances  of  delegation,  222 

Ordonnances  of  payment,  222; 

Ordonnateurs,  224 

Revenues — collection  and  dis- 
bursement, 220 

Treasurers-general,  221 


Advances  to  foreign  governments 
(note  2),  42 

Aldrich,  Mildred-Quoted,  71 

Agricultural  Credit,  315-326;  co- 
operative in  France,  317;  co-op- 
erative societies,  324;  Credit 
Agricole,  318;  Credit  Foncier 
312;  local  credit  societies,  319; 
principle  underlying,  315;  pur- 
pose of  loans,  319;  regional 
banks,  322 

Agricultural  Output — France,  96; 
Germany,  124 

Agriculture — Importance  in 
French  life,  75 

Alsace  Lorraine — Annexed  by  Ger- 
many (1871),  141;  forests,  94; 
iron  ore  of  Lorraine,  94;  manu- 
facturing establishments,  94; 
no  payment  to  Germany  for 
public  property  in,  102;  popula- 
tion, 96;  potash  of  Alsace,  94; 
public  wealth  of,  95;  repatria- 
tion of,  93 

Area — France  and  colonies,  96; 
Germany,  124 

Armed  Peace  (1873-1913),  1-5 — 
Cost  of  to  Austria-Hungary, 
France,  Germany,  Italy,  Russia, 
United  Kingdom,  i,  2;  France, 
expenses  (1868-1913),  2,  4; 
cost  of  vs.  national  incomes,  4 

Armies  mobilized,  in  great  war,  7 

Armies  of  Occupation — Cost  of,  107 

Arrondissements — An  administra- 
tive district  of  a  department, 
160;  government  of,  160 

Assembly,  National — To  elect 
President  of  Republic,  158;  to 
amend  the  constitution,  158 

Associated  Merchants,  the  Treas- 
ury and  the  Bank  of  France 
(1804- 1806),  235,  236,  237 

[34^ 


350 


BANKERS  TRUST  COMPANY 


Austria-Hungary — Armed  Peace 
(1873- 19 13),  cost  of,  2;  military 
expenses  (1873-1913),  2;  ulti- 
matum to  Serbia  (19 14),  53 

Authorities — Preface  and,  341-348 

B 

Balkans — Unsettled       conditions 

(1914),  69 
Bank  of  France 

Advances  to  government  (1870- 
1871),  13;  (1914-1921),  14,42, 
250 

Assistance  to  state  for  great 
war — Subscriptions  for  bonds 
and  treasury  bills  obtained, 
13,  250 

Assistance  to  other  banks  in 
1914,  251 

Assistance  to  bourse  in  191 5, 
251 

Auxliary  offices,  281 

Balance  sheet  (Dec.  31,  192 1), 
268-273 

Bills  prorogued  (note  2),  271 

Building,  Paris,  282 

Bourse — Paris  and  other — or- 
ders to  buy  and  sell  securities 
on,  executed  for  clients,  264 

Branches — Authorized  (1806), 
237;  opposed  by  Napoleon 
(1810),  238;  closed,  241;  de- 
partmental banks  merged  as 
branches  (1848),  245;  number 
(1913),  250;  number  (1921), 
280;  management  of,  280 

Capital — One-sixth  of  original 
(1800)  supplied  by  govern- 
ment, 229,  231;  (1803),  232; 
(1806),  237;  (1810),  239; 
(1816),  241;  (1848),  245; 
(1857),  246;  see  also  note  (9), 
page  271 

Censors,  278 

Charter — Original  (1800),  229; 
amended  (1803),  232;  (1806), 
237;  (1840),  243;  (1857),  246; 
(1897),  249;  (1918),  252 


Bank  of  France,  Continued 

Cheques  —  Cashier's,  262; 
crossed,  249,  262;  direct  and 
indirect,  262;  circulaire,  263 
Circulating  notes,  14;  amount 
outstanding  (table)  (1873- 
1912),  255;  (1913-1921),  41, 
132,  257;  exclusive  right  of 
issue  granted  1803,  232;  from 
1803  issues  must  be  author- 
ized by  two-thirds  of  regents 
and  approved  by  censors,  233 ; 
issues  to  assist  gov.ernment 
(1870- 1 878),  246;  legal  tender 
(1848- 1 850),  245,  since  1870, 
247,  273,  monopoly  of  note 
issue — approved  by  Napoleon 
in  principle,  232 ,  for  all  France 
given  in  1848,  245,  253; 
payment — specie,  suspended 
U848-i850),245,(i870-i878), 
247,  273,  since  1914,  272; 
privilege  granted  without 
charge,  231;  sole  right  of  is- 
sue in  cities  in  which  its 
branches  were  located  (1841), 
243 ;  volume  regulated  by  law, 
253 ;  fluctuates  ordinarily  with 
volume  of  business,  253 
Clearing  facilities,  249 
Collection  Department,  263 
Committees,  278 
Controlled  by  state,  274 
Crisis  of  (1804- 1805),  233; 
(1814),  239;  (1837),  242; 
(1848),  244;  (1870- 1 873),  246 
Deposits — (1873-1912)    (chart), 

254;  (1913-1921),  40,  257 
Depositary  of  government  mo- 
neys, 221,  222 
Discount  Board,  233,  278 
Discount    Committee,    formed 
in  1803,  233;  functions,  278 
Discounting  methods,  39,  259; 

liberalized  (1897- 191 3),  248 
Discount  rates  (1822-1847),  244 ; 
uniformity    of,    261;    (1873- 


FRENCH  PUBLIC  FINANCE 


351 


Bank  of  France,  Continued 

1912),  254,  255;  (1913-1921), 
256,  257 

Discounts  and  Loans  (1873- 
1912),  254,  255;  (1913-1921), 
256,  257;  methods,  259,  260; 
volume  (192 1 ),  260 

Discounts  limited  from  1803  to 
three   name  business   paper, 

233 
Dividends  (1910-1921),  268 
Earnings  (1910-1921),  267 
Employees,  282 
Expenses  (1910-1921),  268 
Financial  agent  of  government 

from  foundation,  229 
Founded  by  Napoleon  I,  Jan. 

18,  1800,  229; 
Foreign  credits,  15,  250,  271 
"Frozen    Credits"   (1914-1921), 

43;  and  note  2,  271 
Functions  and  operations,  253- 

273 

General  Assembly,  276 

General  Council,  277 

Government  of — Auxiliary  of- 
fices, 281;  branches,  280; 
censors,  278;  committee  of 
discount,  278;  committee  of 
bank  notes,  279;  committee 
of  bookkeeping  and  securities 
portfolio,  279;  committee  of 
funds,  280;  committee  of 
relations  with  public  treasury, 
280;  employees,  282;  general 
assembly,  276;  general  coun- 
cil, 277;  governor  and  sub- 
governors,  275;  regents,  277 

Governor,  275 

Head  office,  282 

History,  229-252;  Napoleonic 
period,  229-240;  (1814),  239; 
under  Restoration,  240;  in 
reign  Louis-Phillipe,  242;  in 
revolution  ^  (1848),  244;  in 
second  empire,  246;  in  Franco- 
Prussian  War  (1870-1873), 
246;     under    the    commune 


Bank  of  France,  Continued 

(I87i),247,248;(i897-i9i3), 
248;  during  great  war  (1914- 
1921),  250 

Letters  of  credit,  263 

Loans  and  discounts  (1873- 
1912),  255;  (1913-1921),  257; 
methods  of  making,  259 

Management — See  Government 

Money  transfers,  261 

Moratoria  of  discounted  bills,  42 

Napoleon — connection  with — 
founder,  2^9;  dominates  early 
years,  230;  changes  charter 
in  1806,  232;  notes — solicitous 
for  safety  of,  232;  and  crisis 
of  1804-1805,  234;  in  1806, 
236;  branches — attitude  to- 
ward, 237;  invests  in  stock 
of  bank,  239 

Notes — see   Circulating   Notes; 

Ownership,  274 

Paris — Home  office,  282 

Privilege — (1800),  229;  (1803), 
232;  (1806),  237;  (1840),  243; 
(1857),  246;  (1897),  249; 
(1918),  252 

Quotations     of     stock     (1802- 

192 1 ),  337-340 

Railroads — Aids  in  develop- 
ment of  (1858),  246 

Rediscounts,  260 

Regents,  277 

Reserve  accounts  (1910-1921), 
268;  (1921),  notes  10-14,  272 

Reserves,  Specie — Amount  held 
(1813),  240;  (1847),  243; 
(1848),  245;  (1870-1878),  247; 
(1873-1912),  254,  255;  (1913- 
1921),  note  (i)  42,  256,  257; 
fixed  amount  not  required 
agt.  either  notes  or  deposits, 
258;  how  maintained  during 
great  war,  44 

Safe-keeping  department,  263 

State  Control,  274 

State — Coupons  paid  for,  265; 
depository    of    state    funds, 


352 


BANKERS  TRUST  COMPANY 


Bank  of  France,  Continued 

264;  funds  transferred  for, 
264;  loans  to,  265;  relations 
with,  264;  taxes  paid  to,  266; 
supervised  by,  274 

Stock — Capital,  note  (9)  "trans- 
fers," 271;  quotations  (1802- 
192 1 ),  337-340 

Taxes  paid  by  (1921),  nature  of, 
266;  amount  (1910-1921),  268 

Transfers  of  Money,  261;  vire- 
ments.  261-262. 
Banks  and  Bankiri? — 

Advances  to  public  (191 4-1 921), 
42 

Annual  reports,  290 

Bank  of  Algeria,  13 

Bank  of  Current  Accounts,  229 

Banque  Nationale  de  Credit,  40; 
dividends  (1913-1920),  297; 
statements  (19 13  and  192 1), 
40,  294,  295;  quotations,  297 

Baring  Brothers  &  Co. — Bankers 
of  London,  240,  285,  287 

Branch  banks,  293,  302.  See 
also  Bank  of  France 

Bureaux  d'Escompte  (1848),  285 

Caisse  des  Dep6ts  et  Consigna- 
tions, 225,  330 

Charters,  perpetual,  290 

Cheque,  the  use  of,  300 

Classified  —  credit  companies 
(commercial  banks),  business 
banks  and  international 
bp,nks,  291 

Clearing  House,  303 

Colonial,  298 

Commercial,  consolidated  state- 
ments (1914-1921),  40 

Co-operative  Societies,  324 

Comptoir  d'Escompte  (1830- 
1832),  242;  (1848),  286 

Comptoir  National  d'Escompte 
de  Paris,  40;  dividends,  297; 
statements  (1913  and  1921), 
294,  295;  quotations,  297 

Country,  297 

Credit  Agricole,  318 


Banks  and  Banking,  Continued 

Credit  companies,  39,  40,  291- 
297;  character  of  business, 
291-293;  dividends  paid,  297; 
quotations,  297;  statements 
(1913  and  1921),  294 

Credit  Commercial  de  France, 
0;  dividends,  297;  state- 
ments (1913  and  1921),  294, 
295;  quotations,  297 

Credit  Foncier  de  France,  304- 
314;  bonds  of,  308;  business, 
304;  communal  loans,  308; 
mortgage  loans,  306;  principle 
on  which  business  is  based, 
305;  central  office,  Paris,  313; 
interest  charged,  307;  loans 
to  municipalities,  308;  mort- 
gage loans,  306;  secondary 
operations,  310;  organization, 
306 ;  quotations — bonds  ( 1 879- 
192 1 ),  339-340;  stock  (1852- 
192 1 ),  338-340 

Credit  Industriel  et  Commercial 
— See  Societe  Generale  de 

Credit  Lyonnais,  40 ;  dividends , 
297;  statements  (19 13  and 
192 1 ),  294,  295;  quotations, 
297 

Credit  Mobilier,  286-288 

Currency — See  Bank  of  France, 
circulating  notes;  Money 

Current  accounts,  293 

Department  of  Financial  Stud- 
ies, 300-302 

Deposits — described,  293;  vol- 
ume (1914-1921),  40 

Discount  operations,  292 

Examinations,  none  by  State, 
290 

Financial  banks  (of  affairs),  298 

Foreign  trade,  298 

History  of  (1816-1886),  285 

Loans  and  investments  (1914- 
1921),  42 

Methods  of  banking,  39,  290 

Ministry  of  Finance,  banking 
functions  of,  225 


FRENCH  PUBLIC  FINANCE 


353 


Banks  and  Banking,  Continued 

Organization,  290 

Pension  d'effets — "boarding  out 
of  commercial  paper,"  292 

Popular  banks,  326 

Principles  of  banking,  summar- 
ized by  Mollien,  230 

Private — in  revolution  of  1848, 
244,  299 

Provincial  (1810),  238;  (1830- 
1840),  242 

Regional  banks,  32 

"Reports" — a  form  of  loans,  292 

Reserves,  299 

Rothschilds — Paris  branch  es- 
tablished (1822),  285,287,288 

Savings  banks,  225,  328-334 

Societe  Generale  de  Credit  In- 
dustriel  et  Commercial,  40; 
dividends,  297;  statements 
(1913  and  1921),  294,  295; 
quotations,  297 

Societe  General  pour  Favoriser 
le  Developpement  du  Com- 
merce et  de  r Industrie  en 
France,  40;  dividends,  297; 
statements  (19 13  and  192 1), 
294,    295;    quotations,    297; 

Societe  de  I'Union  Generale,  288 

Sous-Comptoir  des  Entrepre- 
neurs, 305 

Statistical  departments,  300 

Stockholders'  liability  limited, 
290 

Supervision  by  state — none,  290 

Syndicate  (first)  to  place  gov- 
ernment loans,  285 

Taxation  of,  303 

Treasurers    General  —  banking 
functions,  227 
Baruch,  B.  M.,  98, 99,  344 
Bastable,   C.   A.— "Budget"    de- 
fined by,  169 
Beet-Sugar  Output — France,   96, 

Germany,  124 
Belgium — Currency,    132;  ex- 
penditures,   national,    116-118; 

national   debt,    132,    137;    per 


capita  expenses,  115,  116;  rev- 
enue receipts,  116;  reparations, 
99,  100,  102  ,111 

Billion — Equivalent  to  1,000  mil- 
lion; French  equivalent  one 
millard 

Boer  War — Cost  of,  i 

Bourse — Paris,  collapse  of  prices 
in  July,  1914,  69;  closed  Sept.  3, 
1914, 73;  re-opened  December  7, 
19 14,  73;  securities  market, 
1914,73;  settlement,  July,  1914, 
deferred,  80;  partial  payment  in 
December,  19 14,  73;  completed 
September,  19 15,  80;  assisted 
by  Bank  of  France,  251;  specu- 
lation checked,  19 14,  70 

Bread  and  Cereals — Regulation  by 
government  as  to  use  during 
war,  76 

Budget — See  Finance,  National 

Budget,  167-179 

Accounts,  when  closed,  172 
Appropriations      (1921),      178; 
(1922)  ordinary,  35;  special, 
36 
Budget  year  {Vexercice),  169 
Definition  of  by  Stourm,   169; 

by  Bastable,  169 
Estimates — annually  laid  before 
deputies   by    minister   of    fi- 
nance, 168;  how  made,  172- 
174 
Estimates  (1923),  36 
Fiscal  year,  171 
Fiscal  period  (Vexercice),  171 
Making  the  192 1  budget,  176 
Parliamentary  procedure  in  re, 

174. 
Provisional  twelfths,  177 
Revenues,      estimates      (1921, 

I922),34; 
Special  Budget  (1922),  36; 
Supplementary  Appropriations, 

Business — Government  regulation 
(1915-1920),  75,  83;  see  also  Eco- 
nomic Conditions,  Industry 


354] 


BANKERS  TRUST  COMPANY 


Cambon  —  Created  the  Grand 
Livre,  204 

Cabinet — 154 

Caisse  des  Dep&ts  et  Consigna- 
tions— Functions  and  organiza- 
tion, 225-227 

Cantons — 161 

Capital — Export  of,  forbidden 
during  war,  83 

Cassel,  Prof. — ^Views  on  stabiliza- 
tion of  currency,  64 

Cattle — Loss  from  normal  number 
by  1917,  75;  No.  1913  and  1920, 
France,  96;  Germany,  124 

Chambers  of  Commerce — Activi- 
ties during  war,  79;  currency 
issued  by,  72 

Cheque,  the  use  of,  in  France,  300 
— See  also  Bank  of  France 

Clearing  House — 303 

Coal — Consumption,  annual,  pre- 
war, 78;  output,  96;  reserves  of, 
France,  96;  of  Germany,  124; 
Saar  Basin,  95;  war  regulations 
in  re  use,  78 

Colonies — 95;  area  and  popula- 
tion, 96 

Commerce — Foreign  (1873- 19 13) 
charts,  48  and  50;  (1910-1921), 
46-52;  1913  vs.  1921,  96;  Ger- 
many, 124;  principal  customers 
(1868-1913),  51;  with  United 
States  (1910-1921),  52;  see  also 
Trade — foreign 

Commercial  Crises — (1804- 1805), 
233;  (1814),  239;  (1837),  242; 
(1848),  244 

Commissions — Commission  De- 
partmental, 159 

Communes — Finances — Receipts, 
expenses,  debts  (1868-192 1), 
211;  defined,  160;  government, 
160;  chief  magistrate  —  the 
mayor,  160;  municipal  council, 
161 

Conscription — (1914)  Effect  of  on 
familiy  life  and  industries,  71 


Constitution — How  amended,  158; 
change  from  republican  form 
of  government  cannot  be  con- 
sidered, 158 

Cost  of  War — See  war,  cost  of 

Councils — Arrondissement,  160, 
165;  conseil  d'etat,  163,  165; 
conseil  de  prefecture,  159,  163, 
165;  conseil  de  prud'  hommes, 
164,  165;  council  of  ministers, 
1 54,  .165;  general,  159,  160,  165; 
municipal,  161,  165;  prefectoral, 
159,  165;  regional — proposed, 
162 

Courts — Accounts,  224;  adminis- 
trative, 162,  165 — two  classes; 
appeals,  163,  165;  arbitration 
(conseils  de  prud 'hommes),  164, 
165;  assizes — only  courts  with 
juries,  164,  165;  cassation,  163, 
165;  commercial,  164,  165; 
council  of  state  (conseil  d'etat), 
1 63 ;  court  of  conflicts,  1 63 ;  court 
of  first  instance,  165 ;  judges,  how 
appointed,  163,  164;  judicial, 
163,  165;  justices  of  the  peace 
161,  164,  165;  prefectoral  coun- 
cils (conseils  de  prefecture),  163, 

165 

Credit  Agricole — See  Agricultural 
Credit 

Credit  Foncier  de  France — See 
Banks 

Credit  National— 90;  bonds — de- 
scribed, 91,  207  (note  19), 
amount  issued,  92,  203  (note 
I9d),  208;  capital,  91,  (note  19), 
207;  loans  made,  by  92;  object, 
91  (note  19),  207;  organized,  90 
(note  19),  207 

Credit  Structure  (1914-1921),  39- 

67 
Crises — See  Commercial  Crises 
Currency — Belgium,  132;  France, 
132;  Germany,  132;  Italy,  132; 
United  Kingdom,  132;  United 
States,  132 — See  also  Bank  of 
France,  circulating  notes;  Money 


FRENCH  PUBLIC  FINANCE 


f355 


D 
Debts — Floating  —  Belgium, 

France,  Germany,  Italy,  United 

Kingdom,  United  States,   129- 

131.  132 
Debts — Foreign,  133-137;  amounts 

due  to  France,  134;  amounts  due 

to  and  from  various  countries, 

136 
Debts — National — Belgium,    132, 

137;  debt  charge,  1921,  various 

nations,  10;  Germany,  125,  132, 

137,  138;  Italy,  132,  137,  139; 

United  Kingdom,  132,  137,  139; 

United   States,    132,    137,    138; 

World  (1912),  3 
Debt,  National — France,  193-209 

Amount  (1815-1913),  201  ;(i9i4- 
1921),  26,  27,  28 

Amount  and  description,  De- 
cember 31,  192 1,  202-209 

Banks  negotiating  (1816-1822), 
285 

Bonds  of  national  defense  (obli- 
gations de  la  defense  nationale) 
— use  of  in  financing  great 
war,  16;  described  (notfes  11- 
I3)»206 

Bons  du  tresor  a  deux  ans  (note 
10),  206 

Charge  (1815-1913),  4;  (1868- 
1913),  201;  (1914-1921),  26, 
28;  (1921),  202,  203 

Conversions  of  (1852),  198; 
(1862),  198 

Credit  National  bonds  (notes 
19),  207-208 

Description  (192 1),  204,  209 

Floating  debt,  (1914-1921),  13, 
15,  26,  27,  42,  129,  132,  137, 
203,  209,  265 

Foreign  debt   (1914-1921),  28, 

136,  137,  203,  209 

Funded  (emprunts),   16-20,  26, 

137,  201,  202 
Grand  livre,  204 


Guaranteed    loans    a/c    Credit 

National  (note  19),  207;  a/c 

railroads  (note  14),  207;  a/c 

sinistres  (note  20),  208 

Germany,    war   with    principal 

cause,  195 
History,     193-209;     monarchy, 
193;  Napoleon  I,  195;  Orlean- 
ists  and  second  republic,  197; 
restoration,    197;   revolution, 
193;     second     empire,     197; 
third  republic,  199;  war  (1870- 
1871),  198;  in  great  war,  15- 
21,  25-28,  30,  31,  202-209 
Lottery  bonds,  205 
National    defense     bills  —  See 
treasury  bills  (obligations  de 
la    defense    nationale),     193; 
(note  11),  206 
Quotations — made  in  terms  of 
interest,  20^;  sell  ex-coupon 
two  weeks  m  advance,  204; 
(1798-1921),  337 
Rentes    (notes    1-6),    204-206; 
"amortissable"  .(notes    7-9), 
204;    perpetual,    204;    bonds 
void  if  not  collected  within 
thirty  years  of  maturity  date, 
205;  coupons  void  if  not  col- 
lected within  five  years,  204 
Sinistres,  loans  guaranteed  for, 

208 
Treasury  bills  (bons  du  tresor  and 
bons  de  la  defense  nationale), 
15,  26;  (note  21),  209 
Two-year   treasury   bills    (bons 
du  tresor  a  deux  ans)  (note  10), 
206;  issued  a/c  foreign  gov- 
ernments (note  2),  42 
War     loans — permanent     (em- 
prunts), 16-20;  estimates,  168, 
170 
Deflation — French    attitude    to- 
ward, 67;  in  United  Kingdom 
and  United  States,  64 
Departments  —  Debts,     211;     fi- 
nances (receipts,  expenses,  debts, 
1 886-1921),    211;    government 


356 


BANKERS  TRUST  COMPANY 


of,  159;  regional  plan,  how 
affected  by,  161 ;  Seine,  the,  212- 
217 
Devastation — Described,  84-89 ; 
extent  of  damage,  87;  men  lost 
and  disabled,  88;  money  value 
of  losses,  87;  summary  of  losses, 
88 

E 

Economic  Conditions  in  France 
(1914),  68-74;  (1915-1920),  75- 
83;  Germany  (19 13  vs.  1921), 
124,  125 

Eliacheff,  Boris,  11,  346 

Exchange — Foreign  (1871)  in  con- 
nection with  payment  of  in- 
deminity  to  Germany,  142-145; 
Paris  exchange  on  various  mar- 
kets (1914-1921),  58;  situation 
during  the  war  and  since,  53-60; 
stabilization  of  (1915-1919),  53- 
60 

Expenditures — authorized  (1914- 
192 1 ),  22;  Belgium,  116,  an- 
alysis of,  118,  per  capita,  116, 
vs.  receipts,  116;  France  (see 
also  Finance — national,  expen- 
ditures), 180-192;  per  capita, 
115;  vs.  receipts,  116,  118; 
Germany,  analysis  of,  114,  116, 
118,  per  capita,  115,  reparation 
payments  by,  98-113,  119;  vs. 
receipts,  116,  123;  Italy,  116, 
118,  119,  120,  analysis  of  (1921), 
117,  118;  compared  (1914-1921), 
119;  per  capita,  115;  vs.  re- 
ceipts, 116;  United  Kingdom, 
analysis  of,  116,  118,  121;  per 
capita,  115; — vs.  receipts,  116; 
United  States,  122;  analysis  of, 
116,  118;  per  capita,  116;  vs. 
receipts,  116 


Ferdinand,  Archduke  Francis  F. 

of  Austria — Assassination  of,  69 

Finance,  Local — Departments  and 


communes,   210,   211;    Depart- 
ment   of    the    Seine,    212-217; 
Octroi,  216;  Paris,  214 
Finance;    Ministry    of — Banking 

functions,  225 
Finance,     National — Administra- 
tion— See  Administration 
Budget — See  Budget 
Centralization — Keynote,  168 
Expenditures — allocation,    180; 
analysis  of,  118,  180;  (1868- 
1913),    4;    (1868-1920),    122, 
182;  (1914-1921), 21-24;  (1922) 
budget,  32-36;  (1923)  budget, 
36;  military  (1868- 19 13),  4 
Fiscal  period   (I'exercice),   169, 
171,  172;  fiscal  year,  169,  171; 
minister  of  finance,  168;  pen- 
sion payments — military, 
(1868-1913),     4;    provisional 
twelfths,  177 
Pre-war  status,  (1914)  68 
Receipts    (1914-1921),    22;  do- 
maine  (state  properties),  184; 
loans   (1914-1921),    31;    mo- 
nopolies, 184,   185;  revenues, 
184-192;      (1868-1913),    185; 
(1914-1921),  31,  186;  taxes — 
income  from,  29-31;  185,  186; 
description  of,  188-192 
Treasury,    administration 
methods,  reorganized  in  1806, 
237;  treasury  dates  from  time 
of  Philip  IV,  167 
Fiscal  Year,  171 
Food    Regulations — During    war, 

75 

Foreign  Debts — France,  Italy, 
Russia,  United  Kingdom,  136 

Foreign  Exchange — During  the 
war  and  since,  53 ;  gold  pools  in 
New  York  (1914),  54*.  Paris, 
exchange  on,  various  markets, 
58;  situation  during  war  and 
since,  53;  stabilization  of  (191 5- 
1919),  55-60 

Fortune — National,  201,  335,  348 


FRENCH  PUBLIC  FINANCE 


357 


Franc  (lOO  centimes) — Foreign 
money  equivalents:  Belgium, 
franc;  Germany,  80  pfennig 
(1.25  francs  =  i  mark);  Italy, 
lira  (=  I  franc);  United  King- 
dom, 9.52  d.  (25.225  francs  = 
£1);  United  States,  19.3  cents 
(5.1826  francs  =  $1) 

Freycinet — Great  scheme  of  public 
improvements,  199 

Fuel — War  regulations  in  re,  77 


Germany — 

Agricultural  output  (1913),  vs. 

1921,  124 
Area  and  population  (1913),  vs. 

1921,  124 
Armies  of  Occupation — Cost  of, 

107 
Armed  Peace  (1873-1913),  cost 

of,  2 
Beet  sugar,  124 
Coal  reserves,  124,  125 
Currency,  61,  114,  132 
Debt,  national,  125, 132, 137, 138 
Economic  Data,  19 13  vs.  192 1, 

124 
Expenses,  military  (1873-1913), 

2;  (1914-1922),  123 
Expenses,  national  (1921-1922), 

y^      114;    (19I4-I922),    123 

Export  tax  re  reparations,  no 
Foreign  trade,    19 13  vs.    192 1, 

124 
Franco-Prussian  War,  140-151 
Indemnity  exacted  from  France 

in    1871,    140-151;    economic 
.effect  of,  146;  use  made  of, 
/  147-150 
Live  stock,  124 
Mark,  depreciation  of,  114 
Military  expenses  (1873-1913), 

2;  (1914-1922),  123 
Mineral  output,  124 
Money — purchasing    power    of 

(1914-1922),  61 


Germany,  Continued 

Physical  and  economic  data 
1913  and  1921,  124 

Potash,  124 

Price  index  numbers,  1913-1922, 
61 

Reparation  obligations,  100, 
10 1 ;  amount  to  be  paid  an- 
nually, 104;  amount,  gross,  to 
be  paid  by  London  Agree- 
ment May,  192 1, 103;  amount 
paid  in  192 1,  105;  amount 
paid  to  Dec.  31,  1921,  106; 
gold  marks  required,  102; 
reparation  bonds,  104;  Wies- 
baden Agreement,   112 

Shipping,  1913-1921,  124 

Taxes  to  be  approved  by 
Reparation  Commission,  no 

Territorial  losses,  125 
Giffen,  Sir  Robert,  150,  344 
Government,  152-166 

Arrondissements,  160 

Cabinet,  152,  154 

Cantons,  161 

Chart,  165 

Communes,  160 

Constitution,  the,  how  amended, 
158 

Councils,  159-162 

Council  of  ministers,  154;  execu- 
tive powers  during  presiden- 
tial interregnum,  155;  legis- 
lative powers,  155;  president 
of  (position  similar  to  English 
premier)  appointed  by  Presi- 
dent of  the  Republic,  154 

Courts,  162 

Departments,  159 

Deputies — Chamber  of,  1 57 ;  dis- 
solution, 157;  election,  1 57;  eli- 
gible persons,  157;  money 
bills  must  originate  with,  156; 
no  new  election  for,  upon  fall 
of  ministry,  152,  157;  number 
of.  157;  number  to  be  re- 
duced in  1924,  157;  salary, 
157;  term,  157 


358 


BANKERS  TRUST  COMPANY 


Government,  Continued 

Keynote  centralization,  152 
Local  administration,  159 
Ministers,    the,    154;    cabinet, 
154;  instability,  155;  legisla- 
tive privileges  and  duties,  155; 
president  of,  154;  council  of, 
154;  portfolios,   165;  respon- 
sibility,   155;   ministry — pro- 
cedure upon  fall  of,  152 
National  Assembly,  158 
Parliament,   156 — meeting  and 
procedure,    157;  committees, 
158 
President  of  the  Republic — du- 
ties, powers,  salary,  term  of 
office,  152-154;  in  case  of  in- 
terregnum   executive    power 
vested  in  council  of  ministers, 
155;  election  of,  158 
Regional  districts  proposed,  161 
Regulation  of  life  and  business 

by,  during  war,  75-83 
Senate — bureau,  165;  duties, 
156;  election,  156;  eligible 
persons,  156;  high  court  of 
justice — when,  156;  powers, 
156 
Treaties — how   negotiated   and 

ratified,  153 
War — how  declared,  153 
"Grand  Livre,"  The — -Of  the  pub- 
lic debt,  204 
Grev\ — Only  president  to  serve  a 
second  term,  153 

H 
Hope     of     Amsterdam — Banking 
House  of,  240,  285,  287 

I 
Income — National,     348;     (1815- 
1913),  201;  (1868,   1870),   150; 

(i9i3).4 
Indenmity — Paid  by  France  after 
fall    of    Napoleon    18 15,    240; 
paid  by  Spain  (1806),  234,  236; 


indemnities  levied  by  Napoleon; 
196;  war  of  1871,  140-151 
Industries — Government     regula- 
tion (1915-1920),  75;  situation 

(1914),  73 
Iron  Ore — Output,  France,  96; 
Lorraine  field,  94;  reserves, 
France,  96;  war  results  in  trans- 
fer of  European  control  from 
Germany  to  France,  94 
Iron — Pig,  output  in  France,  96 
Italy — ^Armed  Peace  (1873- 19 13), 
cost  of,  2;  currency,  132;  gov- 
ernment expenditures  analyzed 
(1914-1921),  119;  government 
receipts  analyzed  (19 14-192 1), 
120;  military  expenses  (1873- 
1913),  2;  national  debt,  137, 
139;  national  expenditures,  116; 
per  capita  expenses,  115,  116; 
prices  (1914-1921),  61;  repara- 
tions, status  re,  99;  revenue  re- 
ceipts, 116 


Japan,  reparation,  status  re,  99 
Judges — How  appointed,  163 
Justices   of   the   Peace — One   for 
each  canton,  161 

K 
Kaufmann,    Dr.    E. — Quoted    re 
history  of  banks,  289 


Levasseur,  E. — Characterization 
of  period  (1815-1818),  241,  348 

Light — Artificial — War  regulation 
in  re,  78 

Live  Stock — Head  of,  France,  96; 
Germany,  124 

Liquor  Trade — Regulation  of,  du- 
ring war,  77 

Lorraine — Iron  ore,  94 

de  Marbois — Minister  of  the 
Treasury  (1800- 1806),  234,  236 

Luxemburg,  transfer  to  Belgian 
Customs  Union,  94 


FRENCH  PUBLIC  FINANCE 


359 


M 

Mayor  (maire) — Chief  administra- 
tive officer  of  a  commune,  i6o; 
how  elected,  i6o 

Meat — Regulation  by  government 
as  to  use,  75 

Military  expenses — Armed  Peace 
(1873-1914),  cost  of,  to  Europe, 
1,2;  cost  of,  to  France,  3 

Mineral  Output — France,  96 

Minister  of  Finance,  168;  budget 
estimates,  172 

Mollien,  F.  N. — Minister  of  the 
Treasury  (i  806-181 5),  236;  ad- 
vises Napoleon  re  Bank  of 
France,  229-231;  343 

Money,  41 ;  Bank  of  France  notes, 
72;  chambers  of  commerce 
notes,  72;  currency  (1914-1921), 
40;  gold,  41;  note  circulation 
various  nations  compared,  131- 
133;  silver,  41;  war  measures, 
(1914-1921),  72 

Moratoria,  73,  79;  (1814,  1839, 
1848,  1856,  1870,  1914),  80; 
banks  freed  from,  December, 
1914,  80;  European  (1914)  effect 
on  New  York,  54;  gold,  70;  hard- 
ships of,  81;  termination  of 
arrangements  for,  instituted  in 
December,  1920,  80;  two  sys- 
tems used,  80 

N 

Napoleon  I,  75;  Bank  of  France- 
dominates  its  early  years  (1800- 
18 14),  229-239;  founded  by,  229; 
administrative  courts  an  out- 
growth of  his  legislation,  163; 
court  of  accounts  founded  by, 
224;  national  debt  under,  195; 
war  levies,  196 

Napoleon  III— 198;  national  debt 
at  time,  197;  public  works 
durmg  reign,  198,  246 

National  Debt— See  Debt,  Na- 
tional, France 


National  Income — See  Income, 
National 

National  Revenues — See  Finance 
— National,  Receipts;  see  also 
Revenue 

Necker — 193 

Notaries — 228 

Note  Circulation — France,  Ger- 
many, Italy,  United  Kingdom, 
United  States,  131- 133.  See  also 
Bank  of  France — Circulating 
Notes 

O 

Octroi — 216 

Orleanist  Dynasty— National  debt 
at  time,  197 


Pallain,  Georges— Governor  of 
Bank  of  France  (1898-1920),  275 
Paris — Finances,  212-217;  budget 
(1799-1921),  debt  (1893-1921), 
213;  government  of,  212;  im- 
provement of,  under  Napoleon 
III,  198;  mayor — none — duties 
performed  by  Prefect  of  Depart- 
ment of  Seine,  160;  octroi — 
articles  taxed,  216;  history,  216; 
revenue  from,  217;  poor  relief- 
provision  for,  215;  population 
(1799-1921),  214;  prefect  of  the 
Seine,  212;  prefect  of  police, 
212;  revenues:  amusements,  tax 
on,  215;  miscellaneous  sources, 
215;  octroi,  216;  public  utilities, 
215;  transportation  systems,  2 1 3 

Parliament — 156 

Pensions — Military — (1873-1913), 
2,  3;  due  to  great  war,  10;  vari- 
ous nations,  10,  12 

Pereire,  Emile  and  Isaac,  286-288 

Philip  IV  —  National  treasury 
dates  from  time  of,  167 

Popular  Banks— For  small  traders, 
326 

Population — France  (1815-1913), 
201;  (1919),  7;  (1921),  96,  116; 


36o] 


BANKERS  TRUST  COMPANY 


Germany  (1914).  116;  (1919),  7; 
(1921),  116,  124;  Italy  (1913). 
116;  (1919),  7;  (1921),  116; 
Russia  (1917),  7;  United  King- 
dom (1914),  116;  (1919).  7; 
(192 1),  116;  United  States 
(1914),  116;  (1919),  7;  (1921), 
116 

Potash — Output,  Alsace  field,  94; 
France,  96;  reserves,  France,  96 

Premier — Title  not  used  —  See 
Council  of  Ministers,  President 
of,  154 

Prefect,  159;  Prefectoral  Council, 
159;  sub-prefect,  160;  advisory 
council,  160 

Prices — Course  of  during  and 
since  the  war,  60-67;  deflation 
of,  64;  index  lumbers — method 
of  computing,  9;  maximum 
reached  in  1920  (except  Ger- 
many), 60;  wholesale  external 
(191 4-192 1 ),  62-66;  wholesale 
internal  (1914-1921),  60  and  61 ; 
purchasing  power  (internal)  of 
dollar,  franc,  lira,  krone,  mark, 
sterling,  61;  purchasing  power 
of  franc,  external  (1914-1921), 
65;  internal  (1914-1921),  61; 
regulation  of  during  war,  81; — 
cost  of  to  national  treasury,  82 ; 
stabilization  of.  Prof.  Cassel's 
views,  64;  wholesale  (1914- 
192 1 ),  France,  Germany,  Italy, 
Sweden,  United  Kingdom, 
United  States,  61 

Provident  Institutions  —  mutual 
benefit  societies,  225;  national 
old  age  pension  fund,  226;  na- 
tional life  and  accident  insur- 
ance fund,  226;  savings  banks, 
225,  328-334;  see  also  Caisse  des 
Dep6ts  et  Consignations 

Public  'Debt—See  Debt,  National, 
France 

Public  Works — Under  Napoleon 
III,  198;  plan  Freycinet,  199 


Quotations — Bank  of  France 
stock,  Credit  Foncier  (stock  and 
bonds),  rentes  (1798-1921),  337" 
340;  rentes  quoted  ex-interest 
two  weeks  in  advance,  204 ;  rentes 
quoted  on  basis  of  income,  204 

R 

Railroads  —  Construction  (1831- 
1846),  243;  (1858),  246;  financed 
by  State  (plan  Freycinet),  199; 
mileage,  213 

Reconstruction,  89-93;  cost  to 
complete,  93 ;  disbursements  for, 
to  January  i,  1922,  93;  how  fi- 
nanced, 91,  117;  progress  made 
(1917),  89;  progress  of  (1919. 
1920),  92;  (1921),  93 

Regional  Districts — Proposed  new 
form  of  local  government,  161 

Rents — House  rents,  annual  prod- 
duct,  81 

Rentes— Quotations    (1798- 192 1), 

337-340 
Reparation,  98-113 

Amount  required — by  Peace 
Treaty,  100;  by  London 
Agreement,  103;  as  modified 
by  Reparation  Commission 
(1922),  108 

Belgium's  claim  and  priority 
rights,  100,  103 

Bonds — amount  and  descrip- 
tion, 104;  annual  charge — 
amount  and  how  provided  for, 
104 

Commission,  99 

Cost  of  armies  of  occupation, 

lOI 

Defined,  98 

French  claim,  ill 

Germany's  obligation   defined, 

98,  99 
Guarantees  Committee,  no 
Payments — amount  required  by 


FRENCH  PUBLIC  FINANCE 


361 


Reparations,  Continued 

Peace  Treaty  100;  by  London 
Agreement,  103;  as  modified 
by  the  commission  for  1922, 
108;  in  kind,  loi,  amount 
paid  (192 1 ),  105;  amount  paid 
to  December  31,  192 1,  106; 
apportionment  of,  iii;  dis- 
position of,  107,  109;  priori- 
ties, 10 1 ;  to  be  in  gold  marks, 
102;  required  subsequent  to 
1921,  108 
Priority  charges  in  re,  loi 
Restitution   of   stolen   articles, 

lOI 

Revised    agreement    of    May, 

192 1,  103 
Territories    transferred  —  debt 
and  public  property  to  be  as- 
sumed by  new  owners,  102; 
exceptions,  102 
Wiesbaden  Agreement,  112 

Restoration — National  debt  at 
time,  197 

Revenue — (1914-1921),  22,  31; 
Feudal,  167;  France,  31,  185, 
186;  Germany  (1914-1922),  123; 
Italy  (1914-1921),  120;  monopo- 
lies, 30;  receipts  from  borrowing 
(1914-1921),  22,  31;  United 
Kingdom  (1914-1921),  121; 
United  States  (1914-1921),  122 

Ribot — Minister  of  Finance,  17, 
57;  renames  "treasury  bills" 
{hons  du  tresor),  "national  de- 
fense bills"  {bons  de  la  defense 
nationale),  15 

Richelieu,  Due  de,  240 

Robineau,  Georges  —  Governor 
Bank  of  France  (1920-19 — ), 
275 

Rouland  —  Governor  Bank  of 
France,  275,  276 

Russia — Armed  Peace  (1873-1913) 
cost  of,  2;  foreign  debt,  134, 
135.  136  (see  notes);  military 
expenses  (1873- 19 13),  2 


Saar  Coal  Basin,  95 
Savings  Banks,  225,  328-334 
Say,  Leon — and  the  indemnity  of 

1871,142,344 
Schleswig-Holstein — Amount  paid 

by  Denmark  for,  106 
Senate — 156 

Serbia — Events  in  19 14,  69 
Shipping — France,  96;  Germany, 

124 
Siege — State  of,  proclaimed  Aug., 

1914,  71 
Sous-Comptoir  des  Entrepreneurs, 

305 
Spain — Subsidy  due  from,  in  1804, 

234 
Stamp,    Sir   J.    C. — -Pre-war   na- 
tional wealth,  II 
Steel — Output,  France,  96 
Stourm,  Rene — Leading  authority 

on  budget,  169,  179,  180,  218, 

347 
Sugar — Government  regulations  as 

to  use  during  war,  76 
Sweden — Prices  (191 4-1 921),  61 


Talleyrand  —  Dictum  re  bank 
notes,  232 

Taxation,  29-31;  described,  184- 
192;  genesis  of,  167;  (1914- 
1921),  31 ;  consumption,  30;  cus- 
toms duties,  30;  excise,  30;  in- 
come tax — from  industrial,  com- 
mercial and  agricultural  profits, 
etc.,  29;  general,  29;  from  real 
estate  incomes,  29;  from  securi- 
ties, 29;  payments,  29;  registra- 
tion, 30;  stamp  taxes,  30;  turn- 
over, 29 ;  war  profits,  29 ;  see  also 
Finance,  National  Receipts,  see 
also  Revenue 

Territorial  Changes — due  to  Great 
War — France,  gains  of,  93; 
Germany,  losses,  124,  125 


362 


BANKERS  TRUST  COMPANY 


Thery,  Edmond — Estimates  of  na- 
tional wealth,  335,  348 

Thiers,  L.  A. — Government  of 
(1870-1873),  246,  342,  343; 
on    the   revolutionary   finances 

(1797),  195 
Third    Republic — National    debt 

during,  199 
Trade — Foreign — Exports    (1873- 
1913)  chart,  50;  (1910-1921),  46; 
France, 96;  imports  (1873-1913) 
chart,  48;  (1910-1921),  46;  prin- 
cipal customers  of  France  (1868- 
I9I3)»    51;    restrictions    upon, 
during  war,  82;  United  States 
commerce  with  France   (1900- 
1921),  52 
Treasurers  General  —  Banking 
functions  of,  227;  bills  of,  234; 
depositories  of  state  funds  prior 
to  1 806, 234 ;  miscellaneous  func- 
tions of,  228;  official  functions, 
221 
Treasury  Bills — See  debt,  national 
Treasury — National — Origin,    167 
Thrift — Institutions  to  promote — 
See  Caisse  de  Depots  et  Con- 
signations,     225-226;      savings 
banks,  328-334 

U 

United  Kingdom — Armed  Peace 
(1873-I913),  cost  of,  2 ;  currency, 
132;  government  expenditures 
analyzed  (1914-1922),  121;  gov- 
ern ment  receipts  analyzed  ( 1 9 1 4- 
1922),  121;  military  expenses 
(1873-1913),  2;  national  debt, 
137.  1 39 1  P^'^  capita  expenses, 
115,  116;  prices  (1914-1921),  61; 
reparations,  status  re,  99;  rev- 
enue receipts,  116,  121 

United  States — Currency,  132, 
133;  Government  expenditures 
analyzed  (1914-1922),  122;  gov- 
ernment receipts  analyzed  (1914- 
1922),  122;  national  debt,  137, 
138;  national  expenditures,  116; 


per  capita  expenses,  115,  116; 
prices  (1914-1921),  61;  repara- 
tions, status  re,  99,  100;  revenue 
receipts,  116 

W 

Wagner,    Adolph — re    indemnity 
exacted  of  France  (187 1),  148, 

344 
War — Boer,  cost  of,    i;   Franco- 
Prussian  (1870),  i;  indemnity, 
140-151;     amount,     141,     142; 
economic  effects  of,   146;  final 
payment,  August  31,  1873,  144; 
interest  paid  on,  141;  resources 
from  which  paid,  145;  national 
debt  at  time,  198;  recovery  of 
France  after,  150 
War — the  Great — (1914-1919) 
Armies     mobilized,     7;     battle 

deaths,  7 
Capital,  export  forbidden,  83 
Casualties,  total,  7 
Cost  in  men,  6; 
Cost  in  money,  7-1 1 
Deaths,  6,  7 

Debt  charge  increased,  6,  7 
Devastation  due  to,  84-89 
Economic   conditions    prior   to 

and  during  1914,  68-74 
Economic  and  territorial  changes 
due  to,  93-97;  Alsace  potash 
field,  94;  Alsace  Lorraine,  93; 
Lorraine  iron  mines,  94;  Ger- 
many, 124,  125 
Financing     of,     by     France — 
Bank  of  Algeria,  13;  Bank  of 
France,  13;  treasury  bills,  15 
First  financial  steps  (1914).  70 
Food  regulation  during,  75 
Foreign   trade   regulations   du- 
ring, 82 
France — how  financed  by,   13, 
24;  how  credit  facilities  were 
used,  39-45 
Fuel  and  light  control,  77 
Industrial  situation  (i9i4)»  73 


FRENCH  PUBLIC  FINANCE 


[363 


War — the  Great,  Continued 

Injuries  to  persons — value  of,  88 
Interest  burden,  10 
Liquor  trade,  77 
Losses,  money  value  of,  87 
Losses — summary  of,  88 
Men  mobilized,  6,  7 
Moratoria  during,  79 
Pensions,  10 — France,  10;  Italy, 
12,     United     Kingdom,     12; 
United  States,  12 
Price  regulation  during,  81 
Property  losses — value  of,  10, 87 


War — the  Great,  Continued 
Securities  market  (19 14),  73 
Wounded,  7 
War — Japanese-Russian,  cost  of,  i 
Wealth  —  National    (1815-1913), 
201;  (1914),   II,  97»  335»  348; 
France,  Germany,  Italy,  Rus- 
sia,   United    Kingdom,    LFnited 
States  in  19 14,  n 
Wine  Output — France,  96 
Wolowski — On  the  effects  of  in- 
demnity payment  (1871),  150, 
344 


„_  14  DAY  USE 

RETURN  TO  DESK  FROM  WHICH  BORROWED 

LOAN  DEPT. 

.TesuD)ect  to  immediate  recall. 

28]ul'6SMs 


REC'D  Li 


JULl6'65-5te 


rjApm 


OCT  2-9  1982 


3= 


LD  2lA-60m-4 '64 
(i.4555sl0)476B 


.GeneraJ  Library 

Umversity  of  California 

Berkeley 


